imagesLook, Donald Trump is a boob, period. He has no chance to do anything in this election other than embarrass himself further, and that’s fine. But I will stick up for the guy on the bankruptcy front. Chris Wallace asked The Donald about his business bankruptcies in a real accusatory way, as if filing for bankruptcy is evil or makes one unfit to run a business (or nation). The fact is, Chapter 11 is nothing like consumer bankruptcy. It’s a request for court protection from creditor action so the business can reorganize itself, and then, presumably, go on operating when the reorganization plan is approved by the relevant players.

When a Chapter 11 is filed, creditor activity is stayed, just like Chapters 7 and 13. This avoids and timing issues with the creditors arguing “but we sued first,” etc. Then, the business negotiates with its creditors with an eye to fixing itself somehow some way to end the bankruptcy and go back into business. A simple example would be that a business might seek to repay its creditors over 10 years instead of the 5 years left as was written on the original repayment contract. This is better than just shuttering the business, no?

The fact is, Chapter 11 is regularly argued to be GOOD for innovation. It’s not necessarily good for the investors or creditors, but that’s the nature of investment: it’s risk. But the opportunity to pull the plug promotes entrepreneurship; it allows the inventive to invent, to probe the marketplace…and, importantly, to be able to try again without being weighed down by debt from an earlier venture. I’m not privy to the facts about the Trump bankruptcies. I just don’t like the idea that the word is somehow an anathema. It shouldn’t be. Do some more research next time, Mr. Wallace.

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