Chapter 11 Bankruptcy: 3 Things You Can Learn From The Donald

29 September 2015
 Categories: , Blog

When it comes to bankruptcy, a lot can be learned by looking at Donald Trump. The Don has filed for bankruptcy four times in the past 25 years. You might think that's impossible, given the strict bankruptcy laws, but you'd be wrong – at least when it comes to the manner in which Donald Trump files bankruptcy. Here are three reasons Donald Trump has survived bankruptcy so well.

Not a Personal BK in the Bunch

Donald Trump has never filed for personal bankruptcy – chapters 7 or 13. His bankruptcies have all been chapter 11 corporate bankruptcies. While the average person can only file for personal bankruptcy protection once every 10 years. Those filing rules don't apply to business entities. Because chapter 11 is all about the corporate holdings, personal assets are usually not touched – unless personal assets were used as collateral to secure the loans and lines of credit.

In two of Donald Trump's bankruptcies, his personal assets were protected. Unfortunately, Trump used personal assets to secure loans included on the first bankruptcy, so his personal assets did take a hit in 1991 and 2004. To protect your personal assets, avoid using them to secure business loans.

It's all about Shape and Structure

While it might seem that corporate bankruptcy would damage a company, it's actually a beneficial way to maintain control of your business, especially if it's still making money. Chapter 11 bankruptcy allows business owners, like Donald Trump, the opportunity to reshape and restructure a business that is making money but has some problem areas. Restructuring can help if the industry you're in changes drastically, and you find yourself losing money. Chapter 11 will allow you to continue operations while you overcome debt and change your current business practices.

Investors Prefer It to the Alternative

If you've used investor money to expand your business, those investors will lose their money if your business fails. Most investors recognize that and would prefer bankruptcy over the alternative. With bankruptcy, they know they'll get at least some of their investment back. In fact, if your company comes back bigger and better, they could receive an even larger return on their investment.

If you own a business that's in danger or going under, you owe it to yourself to consider chapter 11 bankruptcy. When used correctly, chapter 11 will allow you to continue business operations – thereby maintaining your income – while restructuring and fine-tuning the problems that lead to your financial difficulties. Consult a bankruptcy attorney, such as Sever Law Office, to further discuss these possibilities.