To misquote Oscar Wilde, to bankrupt one company may be regarded as a misfortune; to bankrupt several looks like carelessness. And Donald Trump has certainly filed for his fair share of bankruptcies. How many appears open for debate. Even Mr Trump seems unclear on the issue - three times? Four? Possibly six? How ever many it is, he's eager to point out that none of them have been personal bankruptcies. They were all business related Chapter 11 reorganizations. This allowed Trump's struggling businesses to restructure, and cut debt, whilst still trading.
Donald Trump sees the use of Chapter 11 as a "smart" business tool. During the first Republican Presidential Debate, he declared that he had used the bankruptcy laws to "do a great job for my company, for myself, for my employees, for my family". He even went as far as to argue, that filing for bankruptcy was not only good business but verging on standard practice; that "virtually every person that you read about on the front page of the business sections" have done it. In reality, less than 20% of public companies, of comparable size, filed for bankruptcy in that period. And certainly, no company did so as regularly as Trump. His casino and hotel empire holds the crown for most Chapter 11 bankruptcy claims across three decades.
On a certain level, Trump is right. Instigating a Chapter 11 bankruptcy can make good business sense. It is often better than the alternative of liquidating the company. But the question has to be asked as to why such a smart business man ran up millions and millions of dollars of unsustainable debt. And not on just one business, but on at least four. And whilst Trump feels he has come out smelling of roses, what about the other people involved?
Trump is fond of stating that only the big boys got hurt; "These lenders aren't babies. These are total killers," he said during the first Republican Presidential debate. "These are not the nice, sweet little people." But what about the nice, sweet little people? The employees who lost their savings on shares they had been encouraged to buy? And the contractors who weren't paid? Trump may count his bankruptcies as a success, as good management, but they put people out of business.
Trump's name meant he could over-leverage. He kept borrowing even when the hotels and casinos carried too much debt. David Hanlon, a casino executive, told the New York Times that investors believed "his name had real value… They were so in love with him that they came back a second, third and fourth time… They let him strip out assets." Instigating Chapter 11 then allowed Trump to protect his potential losses. And although this was in the letter of the law, some wonder if it is in the spirit of the law. After all, bankruptcy laws are designed to protect - the business, its creditors and its employees.
Chapter 11 is about keeping a business viable, not manipulating it for personal gain. In an interview with Forbes, Edward Weisfelner, a partner at a New York law firm, said of Trump's casinos, "If bankruptcy is used instead to artificially elevate your equity interests above legitimate creditor claims and avoid obligations then you could argue that's not what the laws were designed to do." Trump himself describes the bankrupted casinos as having been "a very good cash cow for me for a long time."
It is worth pointing out that Trump's many run-ins with Chapter 11 occurred during times of financial difficulty in America. The gaming industry was struggling in the 90s when his first four, 3 casinos and 1 hotel, were filed. Recession hit again, in the first decade of the new millennium, with Trump declaring bankruptcy in 2004 and in 2009. It may be that he misjudged his investments in that climate. So, the last word on Trump's bankruptcies should go to The Donald himself. He tweeted last June, "Stop saying I went bankrupt. I never went bankrupt but like many great business people have used the laws to corporate advantage - smart!" Thank you for the clarification @realDonaldTrump.