Trump Went Broke, but Stayed on Top

By David S. Hilzenrath and Michelle Singletary
Washington Post Staff Writers
Sunday, November 29, 1992; 7:47 PM

One day in 1990, as Donald Trump tells it, he and model Marla Maples were strolling along New York's Fifth Avenue when they passed a beggar.

"You see that man? Right now he's worth $900 million more than me. ... Right now I'm worth minus $900 million," Trump told Maples.

After a decade of profligate borrowing, Trump lacked the cash to make his loan payments. Although he owned hotels, skyscrapers, casinos and an airline, his debts exceeded the value of his properties by hundreds of millions of dollars.

Trump's lenders could have forced him into personal bankruptcy and stripped him of almost everything. But that didn't happen.

Instead, the bankers and investors to whom Trump owed money made a series of deals that left him wealthy. They let him keep some properties and took control of others, and they reduced Trump's personal debt by about $750 million, more than four-fifths of the total.

They didn't do it out of charity. Rather, the lenders were reluctant to confront Trump in bankruptcy court, where they would face years of delay and massive legal expenses. In the end, lenders said, they feared they would recover less money in bankruptcy than they could get by striking compromises with Trump.

Today, Trump lives in a luxury apartment on one of the top floors of Trump Tower. He also owns the Tower. He still gets around by limousine and helicopter, protected by personal bodyguards, and has millions of dollars at his disposal. He is nowhere near as rich as he once claimed to be, but he is in much better shape than he could have been if he had been pushed into bankruptcy.

What happened to Trump is a testament to a breakdown of the nation's bankruptcy system, according to bankers, lawyers, accountants, academics and other experts. The system has become such a quagmire that lenders are going to great lengths to avoid it.

When Congress last overhauled the bankruptcy laws in 1978, it sought to make it easier for people and businesses to recover from financial ruin. But in practice, the system Congress created favors debtors over creditors, the people who owe money over the people to whom it is owed, many specialists say.

"The system is broken," said an associate who helped Trump use the system to his advantage.

"It's the system that gives power to the debtor where it shouldn't."

Debtors enjoy such a strong position that creditors "have to buy them off," said Michael C. Jensen, a Harvard Business School professor.

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© 1992 The Washington Post Company