-- Q: What happens if I buy stock in a company that files for bankruptcy or bankruptcy protection?
A: The credit crunch is putting the squeeze on many companies. But as a stock investor, you want to make sure you don't pay the price.
With an increasing number of companies facing difficulty borrowing money at reasonable rates, there's no question defaults, and bankruptcies, will become more common. Standard and Poor's recently boosted its forecast for U.S. credit defaults to more than 7% over the next 12 months, well above average.
And that's why your question is so important. As common stock investors have learned the hard way after the bankruptcies including airlines and Kmart, they're last in line for assets.
If you buy common stock in a company that fails, it's likely you'll end up with nothing. Generally, the bond investors end up owning and controlling the company and get rights to the assets. The Kmart case is a great example and worth reading about before you try to pick up stocks of struggling companies.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at email@example.com. Click here to see previous Ask Matt columns.