Why Do People Confuse Trump's Business Bankruptcies with Personal Bankruptcy?

There seems to be a misunderstanding among many regarding the distinctions between corporate and personal bankruptcy. This confusion, especially in the context of former President Donald Trump, stems from a broader misunderstanding of how businesses operate and the nature of bankruptcy.

The Layman's Perspective on Bankruptcy

When practicing law, I encountered many individuals, often referred to as laymen, who held a singular belief about bankruptcy: that it ruins your credit for seven years. This misconception is understandable given that the average person has little knowledge about the bankruptcy process beyond what they read or hear in the media. Familiar examples of bankruptcies often involve scandalous stories of failed businesses, but the public's reaction often taints an entire individual's reputation, regardless of the circumstances.

Corporate Bankruptcies and Business Structures

From a legal standpoint, a corporation is like a new individual, separate from the individuals who founded it. To illustrate, imagine starting five corporations. If one or two of these corporations go bankrupt, it does not inherently affect the other live corporations, assuming the management and financial practices were handled correctly by a professional such as a Certified Public Accountant (CPA). Legal bankruptcy is a tool used to protect assets and save a company; it is not a reflection of personal failure.

Examples of Corporate Bankruptcies

Throughout history, bankruptcy has been a common occurrence in the corporate world, affecting companies of all sizes and industries:

Utility Companies: The phrase "the power is out" is often used as a metaphor, reflecting the reality of electricity suppliers running into financial troubles. Oil Companies: Managing large oil reserves and complex operations can lead to unsustainable business models. Radio Shack: Despite its brand recognition, the company struggled to adapt to a changing market, eventually leading to bankruptcy. Sears/Kmart: This iconic retail giant also faced the challenge of modern retailing and ultimately declared bankruptcy. Car Manufacturers: Companies like Chrysler, General Motors, and others have also experienced bankruptcy as a means to restructure and avoid liquidation.

These instances of corporate bankruptcy do not reflect on the personal integrity of the individuals behind the companies. Instead, they highlight the inherent risks and challenges of operating large, complex organizations in an ever-changing business landscape.

The Case of Former President Donald Trump

Former President Donald Trump is often criticized for his business ventures and the failures of some of his corporations, such as the Trump Organization. It is crucial to recognize that these criticisms stem from a broader political climate and public sentiment, rather than a lack of understanding of basic business principles.

Trump once promised to run the country as he ran his business, which may have been an ambitious goal. However, the political sphere operates differently from the business world, and the way a company is managed is not directly comparable to the complex responsibilities of a national leader. Misunderstandings and misinterpretations of his business failures have contributed to a distorted public perception, fueled by a desire to discredit him rather than a lack of factual knowledge.

Conclusion

The key takeaway is that the bankruptcy of a business entity, whether it is a small startup or a large corporation, should not be conflated with the personal bankruptcy of the individuals involved. Corporate bankruptcy is a tool to save assets and restructure, which, when handled properly, can be a necessary and beneficial process. Misunderstandings about these concepts often reflect broader societal issues, including political bias and a lack of economic literacy.