Prior to the 2016 presidential election, when people discussed then-candidate Donald Trump, they often focused on his personal finances and how he had run his businesses. One of the common refrains had to do with his bankruptcies. According to pundits and critics, Trump had been unsuccessful in business, having to file bankruptcy several times in order to get by. Some people may have seen those stories and read the reports only to wonder how a person can declare bankruptcy so many times. For someone with the wealth of Donald Trump, how is it possible to keep declaring bankruptcy?
Donald Trump and personal bankrtupcy
To understand Donald Trump and bankruptcy, one must first understand the distinction between personal finances and business finances. Businesses are separate entities according to the law. In particular, corporations have their own legal personhood. They are specifically created so that people can avoid personal financial liability if things happen to go wrong. With this in mind, Donald Trump has actually never declared personal bankruptcy. In each instance, his bankruptcy has been a result of a business failure rather than a personal failure.
The business bankruptcies of Donald Trump
While there are no personal bankruptcies in Donald Trump’s background, there have been many business failures in which his companies have been forced to take bankruptcy protection. Perhaps the most prominent of these is the Trump Taj Mahal. This hotel, which had long been a staple in Atlantic City, went bankrupt in 1992, one year after Trump purchased the hotel.
There have been many other business bankruptcies. Most of those have involved casinos. While Trump has tried hard in the casino business, he has had a number of failures there. On top of that, his Trump Plaza Hotel had to declare bankruptcy in order to seek ample protections.
How can a person declare bankruptcy so many times?
The easiest answer to this question is that a person can declare bankruptcy many times if he or she has many businesses. Trump inherited tremendous amounts of money, and he had serious assets related to the real estate business. This allowed him to have multiple companies. Because they are separate entities, Trump is legally allowed to file for bankruptcy on each without it impacting the other companies.
Trump has been able to file for bankruptcy many times in part because bankruptcy is a relatively normal thing for highly leveraged companies. One type of bankruptcy allows a company to discharge all of its debt. Another form, known as Chapter 11, allows companies to restructure their debt and pay it off over time. Trump did this with his Taj Mahal when he struck a deal to give up equity in order to satisfy some of that debt.
Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!