Dear Mr. Berko:

  I bought 300 shares of WorldCom last year at $14 because I believed the research of one of the well-known analysts at a company where my son has been a broker. Shame on me.  

As you know, WorldCom has declared bankruptcy, but the stock is still trading at about 25 cents a share. If the company declared bankruptcy, that means the company can’t pay its bills and is out of money. So why do the shares of WorldCom still have any value?  

According to the papers, the stock has traded between 10 cents and 35 cents a share, and more than 100 million WorldCom shares are traded every day. If the company is bankrupt, why is it still listed on the exchange? I haven’t sold my shares yet, but would you recommend that I take a tax loss even though I certainly don’t need it this year?  R.E., Moline, Ill.

Dear R.E.:

  There are two kinds of bankruptcy for businesses: Chapter 7 and Chapter 11. If a company files for Chapter 7 bankruptcy, it’s a goner; there’s zero hope of putting it back together. Under Chapter 7, a company just shuts its doors, closes its bank accounts and completely discontinues its operations. All its assets are sold to pay expenses and creditors. If there’s no money left over, the shareholders don’t even get the courtesy of a notice.

Though it’s not much comfort, you can claim a tax deduction for the cost of your investment in the year the shares become worthless. Chapter 7 is the more severe form of bankruptcy.  

A Chapter 11 bankruptcy gives the shareholder a modicum of hope. Under a Chapter 11 bankruptcy, the company will use its best efforts to work with its creditors (reschedule debt payments, reposition assets to secure short-term capital, reduce employment, sell off non-core assets, consolidate debts, reduce inventory, etc.) to jump-start its business. The company will also work with major shareholders and bondholders to reorganize and become profitable once more.

In a Chapter 11 bankruptcy, shareholders are notified and asked to vote on a reorganization plan. The company will notify you of reorganization details and post you a ballot along with court-approved disclosure statements (hundreds of pages thick in very small print) so you can make an informed judgment.  

However, in most instances, it’s a waste of time to vote for or read the “reorg” plan, which has been cobbled together by a cadre of $600-an-hour accountants and lawyers. But in many cases, you will receive new shares in the reorganized company or a combination of shares and bonds in exchange for your shares in the old company.

  WorldCom declared Chapter 11. Still, you don’t have a seed of say-so about what’s going on. And when you get the two pounds of proxy material in the mail detailing its reorg plan, just toss it. It’s a boilerplate document that’s written in triple-speak, and few of us will have any idea of they’re trying to do. So don’t even bother voting.  

But all is not lost yet. In mid-November, WorldCom (WCOEQ-18.5 cents) got itself a new chief executive officer, Michael Capellas, the former president of computer-maker Hewlett-Packard. Capellas has indicated that he has no intention of breaking up WCOEQ or selling off its pieces. He has already held myriad meetings with large customers, employees and creditors.  

This guy may be successful. He was CEO of Compaq prior to its merger with Hewlett-Packard and earned high praise for streamlining Compaq following its problem-plagued mergers with Tandem Computers and Digital Equipment. Capellas is so certain of his success with WCOEQ that he turned down a more attractive offer to be “el presidente” of Microsoft. Wow! How’s that for confidence?  

If 48-year-old Capellas’ reorganization plan succeeds, WCOEQ shareholders should be able to recover some of their losses. Certainly this $35 billion revenue communications company has some zip left among the billions of shares outstanding. Don’t sell the stock yet. I think the company has a little life left and that in a couple of years, the shares could be worth a couple of bucks each.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or visit his Web site at www.berkoradio.com.