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Or more generally:

  • How can a firm that files for bankruptcy still be traded?
  • What is a bankrupt firms worth?

Disclaimer: I am a complete noob regarding these topics and I probably miss already some basic underlying understanding of these terms. So here is how I understand it and why I can't wrap my head around it:

  • Hertz filed for bankruptcy. (what does that really mean? They won't be able to pay money they owe to some third parties, right? Like employees, creditors, etc..). They still need to pay as much as possible, right? My crude understanding is: when X files for bankrupcy, they basically declare they won't be able to pay back everything but they do pay as much as they can - after that I would expect X to be gone and nobody can expect anything more from X. Creditors have to take the hit. I would have also expected the company to cease the business, but one can still rent a car at Hertz...
  • So why is Hertz still being traded? Owning shares, AFAIK, is basically that I own part of the company, right? But if they owe to creditors and employees, won't the shareholders be payed back last, with what is left? But if they owe more than they can pay, doesn't that mean that the shareholders will get nothing back for their stock?
  • This now begs the question: what are the people buying stock betting on? That Hertz will be able to pay back more than expected? That they can get out of bankruptcy?

Now, clearly Hertz is still being traded and for a short moment it still went up. So I must be misunderstanding something or missing a point - what does it mean for a bankrupt company to be undervalued? What's a bankrupt company worth? (All the fundamentals are "negative" right?)

Can someone maybe shed some light on this topic for me? Or point me to the right sources on what are the underlying concepts I am misunderstanding?

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    There are 1/2 a dozen or so types of bankruptcy filings. It can used by businesses to reorganize debt structure or it can be used for liquidation of the company. – Bob Baerker Jun 25 at 11:49
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  • @BobBaerker so, does it mean that the speculator thinks that the company is going to come out negotiating a better deal than what the stock price at the current moment suggests? – dingalapadum Jun 25 at 12:01
  • A speculator who is buying think that share price is going to go up. A speculator who is selling think that share price is going to go down. One of them is wrong. Orders on the order book are a snapshot in a moment in time. What they depict can shift in a heartbeat. In addition, the are alhorithmic orders that do not display the full size of the order (iceberg orders) so you have no clue what the size of the buyer or seller's order is. My two cents is that you shouldn't be directionally trading based on the order book. – Bob Baerker Jun 25 at 12:12
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    Take a look at what happened with American Airlines after they filed for bankruptcy after 9/11. marketrealist.com/2016/06/…. They went from 57 cents/share to $55/share in 4 years. – JohnFx Jun 25 at 12:25
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How can a firm that files for bankruptcy still be traded?

Because bankrupty does not necessarly mean worthless. As in aboslute - it means unable to pay the bills. Technically i.e. an investor may want to make a takeover bid.

They won't be able to pay money they owe to some third parties, right?

Technically it means this. It does nOT mean there is no value left - it is likely in the case of Hertz, but unabel to pay a bill may also mean tons of not liquid assets that must be sold over time - and it MAY be something is left over. Funny enough it may happen a LOT is left over - i.e. german Hypo Vereinsbank went belly up during the financial crisis. LATER it came out the auditors had mis-balanced and counted a lot of debt twice - the bank was NOT insolvent.

Owning shares, AFAIK, is basically that I own part of the company, right? But if they owe to creditors and employees, won't the shareholders be payed back last, with what is left?

Yes, but that last part may not be 0. NOt once yo usell all the stuff that is not liquid and may also be in the books with 0 value (i.e. a brand name).

This now begs the question: what are the people buying stock betting on?

In case of Hertz: They trade. Stock goes up, someone will hopefulyl buy it for a bigger price. THAT company is pretty worthless (mostly beacus ethe cars are leased and there is not a lot more - it is not like i.e. Microsoft (very large patent portfolio, tremendous real estate that likely is paid off) or an industrial company that may have factories that are fully paid. This is a pure betting game.

What's a bankrupt company worth? (All the fundamentals are "negative" right?)

Not necessarily. Technically it means unable to pay bills - not being under water. It could be a cash crunch.

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TomTom described the mechanics of bankruptcy well, but it's worth noting that there have been rumors of large car dealers buying up Hertz's fleet that might keep them afloat. I have no idea if it's true or if it would work, but it may give investors reason to take a risk on a "cheap" stock that could rebound many times over (a "lottery ticket").

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