A bankruptcy should mean returns = -100% (or slightly less if you already received some payments). This should reduce your average return, increase your variance, and of course decrease your Sharpe ratios.

Yes but it hasn't happened yet. A single stock could go to zero, even an entire index, but I bet you don't calculate it that way and assume the theoretical worst case?

I ran my PnL numbers based on actual cash flows. So in your case, the unrealized bankruptcy should not impact your portfolio's Sharpe ratios.

Some managers take into account the usual PD, LGD, EAD numbers; LC provides recovery rates -- which can be used as (1 - LGD) -- for various late stages. If you are using this approach, then you should discount your defaults / BK loans accordingly (even prior to the actual charged-off). This would impact your Sharpe ratios immediately.