Will GM bonds become worthless?

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By George Mannes and Ismat Sarah Mangla, Money Magazine

NEW YORK (Money Magazine) -- Q. I have General Motors bonds that mature in 2011. If the company files for bankruptcy, how much will I get back, if anything? - Ginny Lane, Indianapolis

A. Although bondholders do better than stockholders when companies seek bankruptcy protection, you can't predict how much you or any other creditor would receive. It would all shake out in court, where bondholders would fight over GM's assets and you might receive newGM (GM, Fortune 500) stock or debt. The price for your debt - now trading for 22 on the dollar - indicates that investment pros believe they'll receive securities worth at least that much in a bankruptcy or other reorganization.

While there's no guarantee of that, says Shelly Lombard, an analyst at the bond research firm Gimme Credit, given how far GM's debt prices have fallen, you might as well hold on to what you have. In general, the next time you hear chatter about a company's possible bankruptcy, sell its bonds: "You could be leaving money on the table, but there's too much potential downside," says Lombard. - George Mannes, senior writer

College savings

Q. My 529 plan suffered steep losses in 2008 and is now worth $35,000. One of my kids is a college freshman and the other starts this fall. Should I tap the 529 or take out a loan instead? - Giacinto Maddaloni, Harrison, N.Y.

A. Take out a federal student or parent loan now (rates range from 6% to 8.5%) and give your 529 a chance to recover.

The good news: If you were offered financial aid last year, the odds are strong that your family will qualify for a larger package for this fall, since you'll have two kids in school at the same time, says K.C. Dempster, a financial planner with College Money. Just be sure to spend all the money in your 529 on college bills before your younger child graduates. - Ismat Sarah Mangla, reporter  To top of page

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