Emerging from the waves of Donald Trump media has come the following understanding: Donald Trump has previously filed for bankruptcy. The reality, however, is that Donald Trump has NEVER filed for bankruptcy. Let’s review Donald Trump’s past bankruptcy involvement, focusing on the importance of business entity bankruptcy.
Donald Trump has been involved with various large corporate endeavors since the 1980’s. Throughout his numerous business endeavors, four of these were casino’s which filed for Chapter 11 business bankruptcy:
On each of these cases, the company (in which Donald Trump was a large stake-holder) filed for reorganization bankruptcy. Donald Trump was forced to reorganize the companies and make settlements with his creditors through a Chapter 11 plan.
Donald Trump’s name has never appeared as the filer on a bankruptcy petition. Only businesses Trump was involved in have filed for bankruptcy relief. To further clarify this statement, we will review the concepts of corporations and business bankruptcy.
The basic principle behind corporate business endeavors is to limit the personal liability and involvement of any investor or participant – even the primary investor or owner. Therefore, when a corporation is created, a brand new “entity” is created. This new “corporation” is legally a separate individual from its owner(s).
Without the legal “separateness” of corporations, there would be a much diminished ability for economic development. Any individual – no matter how wealthy or wise – would be at risk of losing everything if they had ANY business involvement that failed. Therefore, many business projects and services would never be attempted: they would simply be too dangerous with which to be involved. Only the safest of business ventures would be pursued. Many buildings and projects would never happen. Many jobs would never be created.
The Chapter 11 Reorganization bankruptcy case (which Donald Trump used in four of his businesses) is the primary mechanism for restoring productivity and reducing losses for failing business. The focus is on the creditors: the Chapter 11 focuses on getting the best “return” or payoff for the creditors within a bad, failing-business situation.
Business bankruptcy – both Chapter 7 and Chapter 11 – is designed to restore productivity to all parties involved with a failing business. Without business bankruptcy, there would be no orderly framework for what should happen when a business begins to fail.
Without business bankruptcy, there would be no choices: you could only continue to operate until everything falls apart. All parties – employees, owners, and creditors – would receive much higher losses. Nothing could be salvaged or retained. The owners and employees would be at a complete loss. The creditors would have to fight each other in state court to receive whatever (if any) is left.
Without business bankruptcy and corporations, developers such as Donald Trump would not be able to create a successful business. There would simply be too much risk and unpredictability. The numerous other businesses that Trump created – such as his golf courses and hotels – are employing approximately 25,000 employees. These business have been and continue to be successful largely in part to business bankruptcy and corporation laws. These laws are a large part of the basic framework for business success in the U.S. today.
~John Forest Bymaster, Indianapolis Bankruptcy Attorney