Question

The popular press has reported that Donald Trump has filed bankruptcy six times. This is somewhat misleading. How? A complete answer will include the type of entity that was used and how Trump was able to put himself into a better position than the creditors

Answer 1

Trump has never filed for personal bankruptcy, hotels and casino businesses of his have declared bankruptcy six times between 1991 and 2009 due to its inability to meet required payments and to re-negotiate debt with banks, owners of stock and bonds and various small businesses (unsecured creditors). Because the businesses used Chapter 11 bankruptcy, they were allowed to operate while negotiations proceeded. Trump was quoted by Newsweek in 2011 saying, "I do play with the bankruptcy laws—they're very good for me."

The six bankruptcies were the result of over-leveraged hotel and casino businesses in Atlantic City and New York: Trump Taj Mahal (1991), Trump Plaza Hotel and Casino (1992), Plaza Hotel (1992), Trump Castle Hotel and Casino (1992), Trump Hotels and Casino Resorts (2004), and Trump Entertainment Resorts (2009). Trump said "I've used the laws of this country to pare debt.

Chapter 11 bankruptcy allows companies to restructure or wipe away much of their debt to other companies, creditors, and shareholders while remaining in business but under the supervision of a bankruptcy court. Chapter 11 is often called "reorganization" because it allows the business to emerge from the process more efficient and on good terms with its creditors.

Personal vs. Corporate Bankruptcy:-

One point of clarification: Trump has never filed personal bankruptcy, only corporate bankruptcy related to some of his business interests. “I have never gone bankrupt,” Trump has said.

As the economy weakened, in 1990 and 1991, Trump’s core businesses racked up losses of $517.5 million. And, between 1992 and 1994, as the economy recovered, they lost another $286.9 million.

By any standards, this is a lot of money to burn through. But what of Trump’s argument that they weren’t real losses of the sort that deplete your bank account and leave you struggling to make ends meet? Were they simply “tax losses”—“non-monetary” deficits that exploited loopholes in the tax code to minimize Trump’s tax burden?

The tax code is certainly friendly to real-estate developers like Trump. The I.R.S. allows developers and landlords to deduct from their profits and income every year a certain portion of the value of their buildings for “depreciation.” But there are limits to this practice. Owners of residential real estate have to depreciate a building over the course of twenty-seven and a half years, which means that each year they can deduct about 3.6 per cent of its value. For owners of commercial real estate, the depreciation period is thirty-nine years, which means that they can deduct about 2.5 per cent of a building’s worth annually.