With the first 2016 presidential debate over and the U.S. presidential campaign coverage reaching a fever pitch, a wide range of personal topics about both major party candidates have been covered in the news. One such theme is Donald Trump’s various bankruptcies throughout his years as a businessman. His adversaries call them failures, while those in the Trump camp call them a drop in the bucket compared to his other successful businesses.
A recent article from Politifact did an analysis of Trump’s past after a recent Hillary Clinton comment, confirming that “Trump has actually filed Chapter 11 six times, four times within two years in the 1990s, once more in 2004 and once more in 2009.”
So let’s using these recent analyses as a starting point for a greater nonpartisan discussion about filling for Chapter 11 business bankruptcy in New York. Trump’s background as a businessman, rather than a politician, has put his business track record under scrutiny. While leaving discussions of his character or his readiness for office at the door, we can look deeper at the concept of business bankruptcy and what it means for businesses and their owners.
Public perception brings out a major misunderstanding regarding bankruptcy in the U.S. – telling the difference between corporate and personal bankruptcy. Personal bankruptcy commonly falls under Chapter 7 or Chapter 13 of the bankruptcy code. Chapter 7 bankruptcy is a normally quicker process than Chapter 13, with a debt discharge in about 3-6 months. Most unsecured debts are discharged, and individuals have a chance of keeping some, or not most, of the their property. Chapter 13 bankruptcy give you more time to pay back creditors, and most of those cases involve modifying current loans in order to make them affordable to you.
Chapter 11 business bankruptcy is a form of reorganization used by businesses; it also goes by “corporate bankruptcy” or “reorganization bankruptcy.” During the process, the debtor can operate as a “debtor in possession,” which means that they act as a trustee of the business and remain in control of its operations. The debtor can work towards becoming profitable again while undergoing financial restructuring and repaying debt. Restructuring may include accepting loans from new lenders or canceling unfavorable contracts.
While Donald Trump has never personally declared bankruptcy, he has pursued bankruptcy protection for business he owns/ed or controls/ed six times. Most revolve around his casino businesses, including hotels and resorts, with several of those companies teetering upon hundreds of millions of dollars in debt. These failings come, in part, as a result of a struggling gambling business and the economic recession. But not all bankruptcies signal failure. A corporate bankruptcy filing can happen as a way to save a business. Chapter 11 bankruptcy allows businesses to find ways to reduce their debt and restructure their daily operations without having to shut their doors. Instead of complete liquidation, they can pay their employees and take in money while creating a new budget and formulating a payment plan for their creditors.