The Truth about the Donald Trump Bankruptcies

Many people are quick to call out Republican front runner Donald Trump for filing bankruptcy multiple times. His opponents often raise the issue but there are some who have exaggerated the facts surrounding his involvement in bankruptcy proceedings.  

My intention here is not for any political endorsement or anti-endorsement, but only to shed light on the true facts of Donald Trump's bankruptcies and the truth surrounding them. 

Personal vs. Corporate Bankruptcy 

As someone who represents people seeking debt relief through bankruptcy, we have to start with a simple truth: anyone who is unable to pay debts as they come due has the legal right to seek the protections provided by the federal bankruptcy laws. 

Individuals have the right to restructure and discharge debts, usually under Chapter 13, and corporations have the same right under the law, usually under a Chapter 11.

Donald Trump has never filed for personal bankruptcy, as his opponents have tried to imply, but his businesses (corporations under his control) have filed for bankruptcy 4 different times: 1991, 1992, 2004 and 2009.

 Atlantic City Troubles

Most of Trump's business troubles centered around his Atlantic City casino businesses. The first involved the Taj Mahal and because of personal guarantees of debts, he was forced to sell off his Trump Airline Shuttle and his prized 282 foot yacht, the Trump Princess. This was probably the most painful case for him in terms of personal assets he had to sell to restructure debt in a corporate Chapter 11 bankruptcy, due to the personal guarantees of corporate debts.

A year later, he was back in Chapter 11, this time to restructure $550 million in debt from the Trump Plaza Hotel and Casino in Atlantic City. In this case, he gave up 49% interest to a half a dozen lenders to negotiate better interest rates but stayed on as CEO of the venture, but with no salary and no real role in the day to day operations.

In 2004, his Trump Hotels and Casino Resorts filed, which controlled the Taj Mahal, Trump Plaza and the Trump Marina. In this case, he reduced his stake from 47% to 27% to get better terms with creditors holding $1.8 billion on debt.

In 2009, Trump Entertainment Resorts filed for Chapter 11 bankruptcy. This company was formed in the aftermath of the prior bankruptcies and ran the Taj Mahal and the Trump Plaza. In this case, his company missed a $55 million bond payment and in the restructuring, Trump reduced his stake to 10%, largely for them to continue to use his name.

Trump finally wised up and got out of Atlantic City, except for licensing his name. The way he puts it, he got out of Atlantic City before it cratered, although many believe that many of these deals were not structured well to begin with. Trump stands by the fact that he put a lot of money into them and made a lot of money too, but got out just in time.

 What is Chapter 11?

Chapter 11 bankruptcy is not a liquidation; that's called Chapter 7 bankruptcy. Chapter 11 allows for the reorganization of debts, usually by refinancing and offering certain creditors an equity position as shareholders in the reorganized company so the company can survive.

In Trump's cases, they were all Chapter 11 Reorganizations where he relinquished some ownership and even control, though this was not true in each of his cases.

Individuals can also file Chapter 11, not just corporations, but usually only do so because their debts exceed the limits of Chapter 13. However for reorganization of debts and to keep all assets, Chapter 13 is usually the best solution for most individuals. Also, keep in mind, if you own a business that is incorporated, it cannot file Chapter 13.

Bad Timing

Each of the Trump bankruptcies had a lot to do with bad timing of his ventures. The 1991-92 cases in particular were dealing with resort projects that were rolling out in recessionary times.  

Most of the people I represent also encountered some bad timing in relation to their finances. In other words, debts were incurred when income was more than sufficient and then something changed, not as any deliberate scheme to take on debts knowing they could never be repaid. This is a bankruptcy myth that most often is not true regarding why anyone or any company filed for bankruptcy. 

The Right to Relief



So while Trump tends to exaggerate the number of other big American companies that file for Chapter 11 bankruptcy, he understands that every person and company has the right to avail themselves of the rights and remedies provided by the law. Donald Trump also understands that the bankruptcy law was written, and is amended frequently, to provide an organized  and civil proceeding to deal with issues of insolvency when things don't turn out the the way it was planned. 

So not everything Trump's opponents say about is bankruptcies is true and not everything he says about them is true. The one thing that is true is that Bankruptcy is Protection for everyone, when things don't turn out as you plan. 

For more details about each of his Corporate Chapter 11 Bankruptcies, read this Forbes article.