Among famous and wealthy businesspeople in the United States, Donald Trump stands out for having had particularly great influence on American culture. With a series of real estate ventures, several television series, numerous books, and no small amount of public controversy, Trump is often considered a major success story. He has also sought bankruptcy protection for his businesses four times. While his experience with bankruptcy is far from typical for most Americans, it offers some examples of how others may be able to protect their interests through a bankruptcy filing.
Corporate, Not Personal, Chapter 11
The key to understanding Trump’s bankruptcy experience is that he filed for Chapter 11 bankruptcy protection for his business interests. While he had considerable personal debt tied up in his first bankruptcy, he was generally able to protect his personal assets by keeping them separate from his business activities. Chapter 11 bankruptcy allows an individual or business to reorganize debts. It is most commonly used by corporations seeking to restructure debts without going out of business, as they might have to do in a Chapter 7 liquidation if their business has significant assets beyond that which the law allows one to protect and keep in a Chapter 7. Trump has stated that he prefers not to use the word “bankruptcy,” describing his Chapter 11 filings as prudent business decisions.
Preferable to Chapter 7
In the context of Trump’s business activities, Chapter 11 bankruptcy was preferable to Chapter 7, as it allowed the business to stay active. A business with significant assets may need to cease all operations in a Chapter 7, since the court-appointed trustee has the authority to sell certain assets and use the proceeds to pay creditors. However, that should never be an issue in the “real world” since a competent bankruptcy lawyer that is representing a potential business client with excess assets would never place such a client in Chapter 7. In the case of an individual, the trustee may sell all of the debtor’s non-exempt assets. In a Chapter 11 bankruptcy, the trustee may oversee the operations of the business, or the financial affairs of an individual debtor. A debtor emerges from a Chapter 11 bankruptcy with the business still intact in many cases, although for some businesses, liquidation may be the only way to cover the debts.
Four Chapter 11 Cases
Trump filed for corporate bankruptcy in 1991, 1992, 2004, and 2009. The first time he filed was reportedly the only time he had significant personal debt connected to the bankrupt business, in an amount reportedly approaching $900 million. He paid much of that debt by selling personal assets himself, such as a yacht and an airline. The bankruptcy cases all involved casino and hotel operations in Atlantic City, New Jersey, which Trump had reportedly leveraged heavily. Each case resulted to some degree from excessive debt secured by these properties. Trump gradually divested himself of interests in the businesses during the successive bankruptcy filings, starting with a transfer of fifty percent of his equity to creditors in the 1991 case . The 2004 case resulted in the formation of Trump Entertainment Resorts, Inc. for the purpose of operating the casinos and hotels associated with Trump’s name. That business filed for Chapter 11 again in 2009.
Devin Sawdayi, a personal bankruptcy attorney in Los Angeles, has represented clients with dignity and respect for sixteen years, helping them to rebuild their finances and their lives. Bankruptcy protection can offer relief to those people whose debts are greater than they can afford to pay, thereby allowing them to reorganize their debt and, in many cases, discharge those debts entirely. To schedule a free and confidential consultation with attorney Devin Sawdayi, please contact us today online or at (310) 475-9399.
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