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Tuesday, March 22, 2016

Donald Trump, Personal vs. Corporate Bankruptcy

Did Donald Trump ever file personal bankruptcy? takes no political position on any of the candidates running for president.

This has been a hot button issue in the 2016 presidential primary.  He has threatened to sue people who have written and commented on this.  The answer to this question: no, Donald Trump has never filed personal bankruptcy.  But the answer does not end there.  He has stated that he has used the laws to his favor to make a lot of money.  
Companies Donald Trump was involved with have filed bankruptcy.  Donald Trump has been involved in 4 major bankruptcies.The Trump Taj Mahal, Trump Plaza Hotel, Trump Hotels and Casino Resorts, and Trump Entertainment Resorts.

Corporations and Bankruptcy.
So what is business bankruptcy and how was this helpful to business owners like Mr. Trump?  Business owners and investors form legal entities called partnerships, corporations, and limited liability corporations.  The main protection of these organizations is to keep the individual protected from debts incurred by the corporation.  So when a company can no longer pay its bills, the creditors cannot grab assets and money from the investors.  Bankruptcy is a filing that protects the business from it's creditors, who will want to repossess assets.  It stops everything and allows the business to operate under protection while the debt situation is sorted out.
A business can file bankruptcy and dissolve the company giving away the remaining assets to the creditors first, then to the investors, and if anything is left, the owner.  A business can also file reorganization bankruptcy which is where the debt is reorganized so it can be paid off.  Negotiations begin with the creditors and the owners as to how the debt will be repaid.  Generally both sides must give away some of their claims or possessions in order to come to an agreement.  In the Trump Taj Majal bankruptcy he gave up a percentage of ownership to banks for them to agree and the banks gave in on some of the debt.  This is a very common practice and many companies use it.  

For more on this story go to NPR
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