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.

Some borrowers who go broke negotiate deals that enable them to avoid bankruptcy altogether. Others get caught up in bankruptcy proceedings but hold on to small fortunes because their lenders get tired of fighting.

Business executives who have plunged into insolvency and emerged wealthy include local real estate investors Conrad Cafritz and Dominic F. Antonelli Jr. Florida developer Tibor Hollo said he was left with a net worth of $35 million after lenders released him from $364 million of his personal debt.

When lenders collect less than they are owed, the direct losers are the lenders themselves, which are typically institutions such as banks, savings and loan associations, insurance companies and pension funds. The indirect losers are the many people who have a stake in those institutions -- shareholders, employees, policyholders, pensioners and the like.

"It's bad for all of us ... a huge waste," said the Trump associate.

In Trump's case, by one informed estimate, dozens of banks collectively have lost several hundred million dollars. Institutions and individuals who lent Trump money by buying his bonds also have made major concessions. Holders of Trump Castle bonds agreed to forgo $200 million of cash payments over a five-year period, according to an analysis by New Jersey casino regulators.

The costliest effect, however, may be the erosion of accountability in the business world.

In Trump's industry, real estate, many people took big risks with borrowed money during the 1980s. They stood to profit greatly if their investments paid off. But many managed to limit their share of the cost of failure.

"There's a great many people who operate on the theory that, 'If I borrow enough, the problem is the bank's, not mine,' " said L. William Seidman, former chairman of the Federal Deposit Insurance Corp., the agency that takes over failed banks.

The danger, Seidman said, is that the ability of borrowers to escape financial responsibility may someday encourage more of the wasteful real estate development and debt-financed speculation that brought taxpayers the savings and loan cleanup.

Fourteen years after Congress rewrote the bankruptcy laws, some legislators say it may be necessary to rewrite them again. A bill proposing modest reforms would have started the job, but it died amid resistance from special interests when Congress adjourned in October.

'A Huge Wild Card'

Trump, author of the autobiographical books "Trump: The Art of the Deal" and "Trump: Surviving at the Top," said in a series of interviews that he fared as well as he did largely because his bankers trusted and respected him. "They love me because I'm good and I'm honest," he said.

"I've developed a great respect for bankers," he added.

Many Trump creditors gave a different explanation for the outcome. Mainly, they were guided by their fear of what might happen if their conflict with Trump escalated into a bitter bankruptcy proceeding, they said. "I did it because it was the only practical solution," said one banker, who declined to be identified.

The concerns that drove Trump's lenders were brought sharply into focus in a telephone conference call in June 1991, when people who had the right to seize the Trump Castle casino chose not to do so. The fear of bankruptcy dominated their deliberations, according to a tape recording of the discussion made available to The Washington Post.

Bankruptcy was "a huge wild card," a participant warned during the strategy session. "This would be a really drawn out, very, very nasty process," he said.

The lenders -- bondholders who had helped finance the Trump Castle casino and hotel -- expressed contempt for the way Trump had managed the casino. But their cynicism about the bankruptcy system outweighed their cynicism about Trump.

Warren Foss, an adviser to the bondholders, advocated letting Trump stay in charge of the casino and paying him an annual $1.4 million management fee, mainly to win Trump's support for a deal that would keep them out of bankruptcy court.

"What is he providing for the million and a half?" one bondholder asked, prompting hearty laughter.

"We hope as little as possible," Foss said, to even greater laughter. "We hope it becomes characterized as a nonmanagement fee."

Even Trump himself is said to have expressed amazement at the power a man in his position held over his lenders.

"Trump used to shake his head. He'd say, 'I don't understand why they don't at least put me in foreclosure and start the {legal} process running,' " the Trump associate said. Trump, who emphasized in interviews that his bankers showed good judgment, denied having made such comments.

Avoiding the Reckoning

There was a time when Trump was one of the lending community's favorite customers. For most of the 1980s, bankers were in a fierce competition to make loans, and Trump was a professional money borrower. The more he borrowed, the more they wanted to lend him. After all, they reasoned, who could be a safer credit risk than the obviously rich and successful Donald Trump?

"My track record had allowed me to secure millions of dollars' worth of financing simply by signing my name," Trump wrote in "Surviving at the Top."

By April 1990, Trump and the businesses that he controlled had amassed debts of $3.4 billion, according to financial records. He had personally guaranteed approximately $900 million of the debt, meaning that lenders could claim that much of his personal wealth if he was unable to make the loan payments. When recession set in, real estate markets collapsed and the bankers' expectations proved wildly optimistic, Trump's debt became too much for him to handle.

The crunch came in 1990, when Trump appeared headed for default on a payment to Trump Castle bondholders. Anxious financiers believed he was on the brink of financial collapse.

But instead of cutting Trump off, the key banks that financed many of Trump's holdings agreed to lend him even more. They put up additional tens of millions of dollars and suspended interest payments on more than a third of his bank debt. In return, they demanded that Trump give them rights to more of his property as additional collateral for their loans.

As it turned out, the bailout was just the beginning of a long and arduous financial restructuring. Trump has spent the past two years negotiating with banks and other creditors to salvage what he can. He and his major lenders last year agreed on general terms. Many of their deals have been completed, while others are in the final stages.

Trump gave up some of his holdings, such as his yacht, his private jet and the Trump Shuttle. He also has agreed to hand over his share of the Grand Hyatt Hotel in Manhattan. In addition to Trump Tower and a 50 percent interest in the Trump Castle, Trump retained controlling interests in two other Atlantic City casinos and New York's landmark Plaza Hotel.

A 118-room estate in Palm Beach, Fla., still belongs to him, as does a large tract of undeveloped land on the West Side of Manhattan.

The deals reduced Trump's personal indebtedness to $155 million from about $900 million, according to Trump Organization officials and Trump creditors. The total debt owed by Trump's businesses has declined to $2.2 billion from $3.4 billion in April 1990, the Trump Organization estimated.

Where all of that leaves Trump's bottom line is hard to gauge. His latest personal scorecard, an unaudited financial statement prepared in June, said his net worth as of Dec. 31, 1991 was somewhere between $449 million and $1.5 billion. The wide range reflects the extremely subjective nature of property valuations, especially in today's stagnant commercial real estate markets.

Various observers familiar with Trump's holdings dismissed those estimates as wishful thinking or self-promotion. Some bankers said Trump still owes more than he owns, because properties such as the Trump Castle and the Plaza Hotel are still worth less than the debt owed on them.

What is clear is that Trump has not had to face the ultimate financial reckoning. That day could come in a few years, Trump and his creditors could keep putting it off, or Trump could make the issue moot by generating enough cash to pay off his remaining debt.

Over the past year, the financial performance of Trump's Atlantic City casinos has improved markedly. If the economy and the real estate markets rebound before his borrowed time runs out, Trump could end up in sounder financial condition than ever.

"Through cooperation rather than conflict, everybody has come out much better," Trump said.

Even if banks and bondholders could have taken away all his properties without a fight, they "would have lost a tremendous amount of money, because other people would not have been able to do what I've done," he said.

Some creditors extract a sterner lesson from Trump's saga.

"I think people like that should pay a price. I think it's morally reprehensible what he gets away with," said Lawrence Lambert, a Fairfield, Conn., investor who put millions of dollars into Trump casino bonds.

'Deathly Afraid'

Trump understood that his creditors were reluctant to push him into bankruptcy, and he used their fear to his advantage.

Privately, the image-conscious Trump was himself "deathly afraid of bankruptcy," a source close to him said. But that didn't stop him from boasting that he would happily cast his fate to the courts.

Trump talked about spending his time skiing or going to Australia -- and returning "six or seven years" later when the bankruptcy process would be winding down, the source said.

At many times in the negotiations, Trump seemed to be in the driver's seat even though he was the one who was broke.

At the Trump Taj Mahal, the largest of his Atlantic City casinos, the Trump name was seen as a drawing card, and creditors were willing to pay to keep it.

For about a year, Trump withheld payments on the $12 million mortgage for his Palm Beach estate even though he had the money to pay, according to a source familiar with the matter. Trump decided that he would not willingly make up the overdue payments unless the bank extended his loan, said the source, who was privy to Trump's plan.

When Trump couldn't afford the cost of insuring and operating his 282-foot yacht -- not to mention the payments on its $25.7 million mortgage -- he got the bank that made the loan to pick up the tab. It came to about $6 million a year, according to a Trump source. The bank wanted to protect the value of the yacht, which served as collateral for its loan to Trump. "For Donald, that was like, 'Wow. You mean if you don't pay, you can make them pay?' " the source said.

The answer was, yes. Creditors knew that if they ended up in a bankruptcy proceeding, it could be years before they gained control of Trump's property and began receiving income from it again. In the meantime, gamblers would desert the casinos, they feared. The shuttle, once grounded, might never fly again.

While the businesses deteriorated, a whole class of bankruptcy specialists would be profiting. Lawyers, accountants, consultants, investment bankers and others would be logging costly fees, Trump's creditors realized. Under the bankruptcy code, those professionals would be guaranteed payment before the creditors received a cent.

And there was an added irony: The money that Trump spent opposing the creditors -- the fees for his own lawyers and other professionals -- would come out of the same pool of Trump resources that the creditors were fighting to get their hands on.

There was a chance that the creditors could have recovered more money from Trump and his businesses in bankruptcy court, lenders said, but not enough of a chance to overcome what some observers described as cautious instincts.

When an employee of a financial institution is up against a major delinquent borrower, "his main incentive is not to do anything stupid. He's looking for job security as opposed to maximizing value," said Jay Lustig, vice president of Drake Capital Securities, who held Trump casino bonds.

"The fear of going into a full-blown bankruptcy and possibly losing their job" if the case were to turn out badly "is more of a motivation to do a deal than to hold out for top dollar," Lustig said.

Moreover, getting as much money as possible out of Trump was not the bankers' only aim. They wanted to make sure that none of Trump's other banks embarrassed them by getting a better deal.

"You don't want to be the guy who lost the most," a banker explained. "There is a need for parity."

When the banks had agreed with Trump on overall terms, "none of them liked it, but nobody disliked it more than anybody else," the banker said.

Return to Glory

Recently, Trump has been exploring the possibility of issuing new bonds for one of his Atlantic City casinos, sources familiar with his plans said. Trump envisions using the proceeds to repay most of his remaining debt years ahead of schedule, the sources said.

Some financial experts said Trump must be dreaming if he believes he can raise that much money from a new bond offering. But Trump already is boasting of a return to glory, and how important it was to have avoided personal bankruptcy.

"I hate the concept of a bankruptcy," Trump said in a recent interview. "The concept of bankruptcy to me means defeat, and even if you come out of it okay, it's still to me a huge psychological defeat.

"If I had filed a personal bankruptcy, I don't feel that my comeback story would have been nearly as good a story," Trump said.

"It would have been always a tarnished story."