Trading bankrupt stocks

In general, trading bankrupt stocks is dumb.  We've all learned about priorities in bankruptcy, we've heard how the old equity holders are usually left with very little equity (if any).  We know markets are efficient, and tend to price in the risk of a full equity wipeout.  Here's the investopedia article about the risk of trading bankrupt stocks: http://www.investopedia.com/articles/stocks/09/bankrupt-stocks.asp.

Furthermore, once a stock enters bankruptcy, it is usually de-listed from the major exchanges and becomes a "pink sheet" - a type of "over-the-counter" (OTC) stock that are generally not available for laypersons to trade without the help of a specially licensed broker.  More in pink sheets: http://www.investopedia.com/articles/investing/070313/use-caution-trading-pink-sheet-stocks.asp.

However, as with every rule of thumb there are notable exceptions.  If you have specific knowledge of a company, its operations, the reasons for bankruptcy, and the disposition of its assets, you might be able to purchase the stock after it has crashed but before it's been de-listed.

Here is one example of what to look for: The 2009 bankruptcy of General Growth Properties (GGP): http://dealbook.nytimes.com/2009/04/16/general-growth-properties-files-for-bankruptcy/?_php=true&_type=blogs&_r=0.

I had special knowledge of GGP because I worked for a less prestigious competitor.  GGP was the number two shopping mall owner in the U.S. - by size of portfolio physically and financially.  They minted cash hand over fist, their portfolio was strong, but their bank was strapped for cash and needed their note repaid.  It was apparent that GGP was merely having was short-term financing problems caused by the financial crisis, and that a Chapter 11 reorganization would see them straightened out.

In the six months preceding their bankruptcy, while GGP was frantically looking for new financing, GGP's stock fell from $27 per share to $0.33 per share -- pre-filing.  One year later the stock was back up to $14 per share, where it stayed for two years.  That's a 42x return on investment (4200%) on a one year hold!