An example is Barney’s Inc. It filed for Chapter 11 in early 1996. Many clothing designers chose to sell their trade claims and recoup a portion of their money. It was of no consequence whether Barney’s was a solid company that had simply overextended itself, they wanted something immediately. Investors who believed company would emerge successfully from Chapter 11 protection bought claims for as little as 25 cents on dollar. The price rose 50% within months, when it was announced a potential buyer had been found for Barney’s.

When creditors can’t wait or are unwilling to wait, steep discounts are common – and this is distressed assets investor’s opportunity to make a good profit.

Some companies in process of reorganizing their debt will issue new securities to junior creditors when they cannot repay them in full. If a fund manager believes company will emerge from bankruptcy and be viable, he might buy these junior bonds for an opportunity to receive shares in company under a reorganization plan.

These shares are sometimes referred to as ‘orphan’ equities when issuing company has no Wall Street coverage. Lack of coverage results from investment banks tending not to view companies emerging from bankruptcy as potential clients. Consequently, only people able to understand value of these orphan issues are investment professionals who have taken time to research company’s liquidation value during Chapter 11 process. They now profit from buying newly issued equities at low prices when other creditors, issued shares in exchange for their claims, dump them because they don’t understand their value.

This is what happened with El Paso Electric when it exited bankruptcy in early 1996. Its orphan equities were first issued at $5 a share. As creditors dumped them, price fell. Savvy professionals were able to add to their holdings when this happened. Two years later, shares were trading at more than $9.

Orphan equities can be highly profitable as investment community, at first overlooking stock, gains more understanding and confidence in its value. This ultimately leads to Wall Street coverage and higher prices.

As always, look for a manager with a solid track record.

Distressed asset investing can be a good way to increase diversification in an investment portfolio. Opportunities are more prevalent in a recession, but companies get into trouble in expansionary times, too. Distressed assets do not have same volatility as many other types of investment. Excessive prices, if they existed, have already been wrung out of them.

The final step in your quest to become a millionaire is to make sure that as much of money you earn as possible is there for you to invest. That means giving as little as possible to your greedy Uncle Sam. There are two simple ways to beat tax man, thereby increasing amount of money available to help build your net worth. Pretax investment vehicles, such as a 401k, traditional IRA and 529 college savings plans, allow you to lower amount that your employer deducts from your weekly paycheck to cover your state and federal tax liability. The only drawback to these types of investments is that once you pull money from account, taxes are due in full. You do however get benefit of watching your money grow tax free for years, which allows concept of compound interest which I discussed earlier to work harder for you than it would if your money was in a traditional savings account. A traditional savings account is one of worst investment vehicles available. Along with comparatively low rates of interest which savings accounts earn, any money that you do earn is subject to annual taxation. To avoid paying taxes on money you withdraw once you become an independently wealthy millionaire, you should set up a Roth IRA. A Roth IRA is funded with after tax dollars, which may leave you wondering how that helps you avoid paying taxes. The fact is though, that in a Roth IRA, all money you earn is yours to keep. Uncle Sam can’t take a penny of money that you accrue in interest, meaning in long run, tax advantages are far better than any other form of investment.

I’ve just shown you in three easy steps how you can take advantage of unseen forces of financial world to grow your net worth at an alarming rate, now all that is left is for you to follow my advice and wait patiently for compound interest to work its magic. By avoiding taxes to greatest extent possible, turning you home into an investment, and most importantly of all, not waiting to start saving, you too can be a millionaire. What you do once you get that million dollars is up to you.

Michael Moore is a successful author who provides information on home loans (http://www.home-loans-4u.net/) and debt consolidation (http://www.home-loans-4u.net/debt-consolidation-loans.html).