Trump Entertainment Survives Bankruptcy

The state of the economy has not been kind to Atlantic City. Due to falling attendance at resorts in casinos in the area, Trump Entertainment Resorts, who owns three hotel and casino complexes in Atlantic City, was forced into filing Chapter 11 bankruptcy for the third time last year. Now, Avenue Capital, an investment firm that specializes in buying distressed debt, has succeeded in helping Trump Entertainment emerge from bankruptcy once again.

When a company can no longer meet its debt obligations, its management may decide to file for bankruptcy. At the time of filing in 2009, Trump Entertainment was worth $2 billion and had debts of $1.7 billion. After missing the deadline on a $53 million dollar interest payment, the company opted to file Chapter 11 bankruptcy, which allowed the business to continue operating while the interested parties tried to come up with a plan for how the company was to be reorganized.

Bankruptcy for Businesses Struggling with Debt

After filing Chapter 11, a corporation then has a period of time where it is not required to meet its obligations. Creditors, investors, and management are then able to devise a plan for reorganization that must be approved by the court. Then creditors are paid with available company assets in a specific order determined by statute.

There are other options in filing for bankruptcy. For example, many will opt for Chapter 7 filing, which consists of a court-supervised liquidation of any non-exempt assets and a systematic repayment of creditors from the proceeds.   However, almost all Chapter 7 cases that are filed have no assets that are not exempt so the debtor loses nothing except the debt.

A company may alternatively file Chapter 11 if there is some perceived financial gain for keeping the business going while relieving it of debt obligations rather than dissolving it. In this way, jobs can be saved and with proper management, the business may once again become profitable.

Related Resource: Financial Times “Trump Entertainment Files for Chapter 11”

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