Chapter 11 Stock Capital Loss Treatment

tkyriako said: "I invested in some stock (Movi) which filed chapter 11 bankruptcy, and has been delisted from the NYSE and is now trading over the counter (as Moviq) for about 7 cents a share. The stock is indeed not considered 'worthless' since it has some value still (7 cents). I have a few concerns regarding the treatment of capital loss if I was to sell it. My questions: 1. For a company that's filed chapter 11 , whose stock has been delisted from the NYSE and is now trading over the counter, can you sell it and take the capital loss, just like you would when selling stock thats dropped in value? 2. I read that it may be difficult to sell the shares over the counter due to the fact that there may be no buyers willing to buy it, do you think this will be an issue when trying to sell? 3. Will the amount of capital loss will be the basis in the stock minus the 7 cents? 4. If you were to have a large capital loss carry forward and the tax law changes in the future will you be grandfathered under the old laws? Thanks"

Rbreb13 said: "1) Yes you can. 2) It has plenty of volume, you should have no trouble unless you own 500,000 shares or something. 3) The loss will be figured as how much you lost in total $$. You can claim up to $3000 per year maximum. But you can claim it for 5 years if your loss is $15k or more. 4) Most likely, if you sell it. Otherwise any new law would take precedent. Sorry for your loss."

LongArm said: "[QUOTE=Rbreb13;60259]You can claim up to $3000 per year maximum.[/QUOTE] Just to add to that, if you happen to have a stock with a nice gain and were thinking of unloading it, now would be a nice time to do it (before the end of the year, that is) because you could offset that capital gain with the MOVIQ loss. The $3k maximum is for NET LOSSES, meaning over and beyond any offsetting gains. E.g., if you had a loss of $10k in MOVIQ, but you also had a gain of $7k with XYZ, you would be able to use all $10k of your MOVIQ loss this year: $7k of it to offset the gain in XYZ and $3k as your NET loss for the year. Eh, hope I'm not complicating things."

tkyriako said: "Thanks, I really appreciate the advice! From what I've read most companies that end up filing under chapter 11 get delisted to an OTC exchange and end up staying in that position for a long time until completely becoming worthless. And if it were to become worthless it would create complications since proving that it is truly a 'worthless security' to the IRS may be difficult. I have 2 questions: 1. Having said this, I feel that most strategic move would be to sell all of the stock now and take the capital loss (and continue to carry it forward). What do you guys think? 2. I realize being a stockholder I have very low priority when it comes to getting paid out. In the event the assets get distributed I want to make sure that I file a claim to be able to have a chance of getting something after all other creditors are fully satisfied. I believe this is more the case when it comes to chapter 7 situations since they appoint a trustee for the purpose of liquidating. Chapter 11 is where the debtor continues to operate the business while creditors meet and come up with a plan to restructure debts (but sometimes a company may liquidate under chapter 11 if management is able to get a higher price than a chapter 7 liquidation is likely to achieve). What do you think? I want to file a claim just in case, is this possible at this point? All this is my understanding of the whole situation, please correct me if I am wrong. Thank you!"

Rbreb13 said: "I choose #1 as the logical course of action. Most times when a company comes out of Chapter 11 as a reorganized entity, the first thing they do is cancel all existing shares of stock (making them worthless) and then reissuing new shares under a different ticker symbol."

LongArm said: "I agree with Rb--I'd sell it while I can still get 7 cents/share. As for your second question, I'm not positive, but I don't think you can file a claim unless and until the company notifies shareholders that there's something to file a claim on. Better to just sell the stock and make sure you get SOMETHING, IMO."

thezster said: "Agree with Rb and LA..... waiting until the stock is no longer trading (worthless) might take a while - and you might as well take the loss now while documentation is simple and easy...."