Politicians tend to inspire strong reactions. During his recent flirtation with politics, Donald Trump was no exception. Among a number of insults launched by Cher, the only one relevant to this blog (or mild enough to repeat here) was the title “mr chapter 11.”
An article at Forbes offers both defenses and criticisms of Trump’s bankruptcies. More importantly, it highlights two important characteristics of Chapter 11 bankruptcies:
- A Chapter 11 bankruptcy can be better for creditors than other options. As one source asked, “What is an empty casino sitting on the Atlantic City boardwalk worth? If it’s operating and it’s got cash flow and income, it may not be able to pay back every cent on the dollar, but the creditors are better off in the long run.” Many individuals and businesses simply have no option to pay all of their debts, certainly not on the schedule they signed up for during the boom years. Even if all their assets were sold, there would not be enough to pay everyone off. A Chapter 11 case can provide a benefit to both debtors and creditors: the debtors can keep assets, and the creditors can receive more than they otherwise would.
- In each Chapter 11 case, Trump’s share of ownership went down. The shareholders in a corporate Chapter 11 case can lose all of their interest in the company unless all other creditors are paid in full. This rule can be waived by creditors, which is what appears to have happened in Trump’s case. Unlike corporations, individuals filing a Chapter 11 bankruptcy can often keep their assets without paying their creditors in full.
If you or your Arizona business are unable to pay bills as they come due, you may wish to consult with an Arizona bankruptcy attorney familiar with Chapter 11 bankruptcies. For a free consultation, call (480) 719-1152.