Unvarnished Truth About Donald Trump’s Four Chapter 11 Bankruptcies
Donald Trump's four bankruptcies were Chapter 11 reorganizations (in federal bankruptcy code), which are designed to restructure businesses without shutting them down completely, in order that the rights of the creditors may be preserved.
No one was stiffed out of their money. They were all repaid by Donald Trump. Despite these four business Chapter 11 reorganizations that are so ballyhooed, the man has built an empire worth billions, encompassing over five hundred companies.
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Creditors are repaid with reduced individual installments, over a lengthened span of time. The purpose is to "save" the business, as opposed to other forms of bankruptcy which would liquidate the company, said Michael Venditto, a partner at the ReedSmith law firm who has extensive experience with Chapter 11.
Donald Trump, as do other major investors, owns many non-integrated companies, and some of them inevitably file for bankruptcy, explained Adam Levitin, a law professor at Georgetown University.
Further, it was explained that people typically wouldn't personally blame such men as former Republican presidential candidate Mitt Romney or investor Warren Buffett for the failures of individual companies within their respective investment and holding firms of Bain Capital and Berkshire Hathaway.
"The only difference is that Trump puts his name on his companies, meaning people associate each of them with him, personally, although he does not personally manage each of them. These four Chapter 11 bankruptcies out of his hundreds of companies were no more unusual or exceptional for Trump than they would be for other men of great wealth and holdings, who literally "own," either totally or partially, hundreds of individual companies."
Trump's four bankruptcies were actually Chapter 11 reorganizations (according to federal bankruptcy code), - designed to restructure businesses in order that they may continue to operate. The purpose of Chapter 11 is to "preserve" the business, as opposed to other forms of bankruptcy which would totally liquidate the company, according to Michael Venditto, a partner at the ReedSmith law firm extensively experienced with Chapter 11.
Finance experts confirm that Trump is correct in his statement that Chapter 11 reorganization is NOT bad business practice, but rather a legally provided method of saving both the business, and the rights of, and future repayment to the creditors.
Bankruptcy Number 1:
This was the first bankruptcy, associated with Trump, according to news reports at the time. He funded the construction of the $1 billion Trump Taj Mahal casino in Atlantic City, which opened in 1990. In 1991, the decision was made to file for Chapter 11 reorganization, preserving the business and its creditors rights, according to the New York Times.
Bankruptcy Number 2:
Trump acquired the Plaza Hotel in New York for $390 million in 1988. As a result of the bankruptcy in 1992, in exchange for terms on which to pay off the debts, Trump transferred a 49 percent stake in the Plaza to a total of six lenders, according to ABC News. Trump remained the hotel's CEO of record; -- he didn't receive a salary, and had no involvement in the hotel's day-to-day operations, according to the New York Times.
Bankruptcy Number 3:
Trump Hotels and Casinos Resorts, including the Trump Taj Mahal, Trump Marina and Trump Plaza casinos in Atlantic City and a riverboat casino in Indiana, filed for bankruptcy in 2004. Trump reduced his share in the company from 47 to 27 percent in a restructuring plan, remaining the company's largest single shareholder and in legal charge of its operations. Trump informed the Associated Press at the time that this particular company represented less than 1 percent of his net worth.
Bankruptcy Number 4:
Trump Entertainment Resorts -- formerly Trump Hotels and Casinos Resorts -- was hit hard by the 2008 economic recession. In December 2008, according to ABC News, after discussion with the company's board of directors, Trump resigned as the company's chairman and had his corporate stake in the company, reduced to 10 percent. The company continued to use Trump's name in licensing as it continued to operate, repaying creditors through Chapter 11.
Out of the five hundred individual companies in which Trump has financial investment or holdings, only four Trump companies have filed for Chapter 11 reorganization.
Whenever Chapter 11 reorganization is necessary, filing for bankruptcy is a "sound business decision", if a company is facing serious financial problems, being far preferable to the business shutting down completely, which actually would eliminate the possibility of any future repayment to the creditors of record, rather than extending the length of time required for their repayment.
Although the source of the financial problems necessitating bankruptcy varies from case to case, it is often the result of circumstances beyond the control of the business. The gaming industry had been struggling during the years involved, and three out of four of Trump's bankruptcies were tied to casinos.
It is accurate that Trump filed Chapter 11 bankruptcy four times for four specific companies; placed in context, however, these companies had individual managers, and were not under Trump's individual control -- at a time that the entire casino industry was struggling, and many casinos, other than Trump's enterprises, failed.
Although much is written claiming that Trump "stiffed" his bankers, that is UNTRUE - because these bankruptcies were filed as Chapter 11, which is legal protection from creditors WHILE reorganizing in order to continue operating, and eventually repay creditors, and were NOT Chapter 7 liquidation.
Again, these were NOT businesses personally overseen by Donald Trump, but were a very small part of his total business holdings, each with their own managers and staff.
Trump is an inspiration to businesses that are currently struggling with debt as a result of economic recession. His past Chapter 11 bankruptcies filed on the behalf of these individual companies, show that rather than giving up, even when a business struggles with debt, after renegotiating with creditors, it can still become a success through reorganization.
By choosing Chapter 11, rather than Chapter 7 in each of the four incidents, Trump relinquished a significant part of his own personal financial holdings in these businesses, rather than allowing the creditors to totally lose theirs.
Formulated as a composite of Forbes, Wikipedia, biography.com, money.com, abcnews, etc.
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