Facts:  Bankruptcy has absolutely nothing to do with honesty!   No one starts a business with the idea of filing for relief under the Bankruptcy Act.  In 1975, I had to put my first company, a foundry I purchased in Chattanooga, into Chapter 11.  I did this is because the recession wiped out my large back-log of orders in less than three months, leaving me with only two choices:  (1) close the doors; or (2) file Chapter 11 Reorganization, and try to restructure our debts and rebuild the sales.

I chose Chapter 11, and in the process saved many jobs that would have been lost if I had given up.  The employees were happy.  The unsecured creditors, who received 25 percent of what was owed to them, were happy.  They would have received nothing if I had shut down … AND they got to continue making money by doing business with me COD.

Of the hundreds of successful businesses Donald Trump has started, and the tens of thousands of jobs he has created, people want to focus on his four business bankruptcies. By contrast, Hank Aaron with 755 career home runs was twice as likely to strike out as he was to hit a home run, but no one talks about his strikeouts.  Why not concentrate on Trump’s many successes, too?

Entrepreneurs, by definition, take risks.  There are no guarantees in this Free Market economy. But we learn from our mistakes.  Every successful business person has had at least one failure, including Chick-Fil-A’s Truett Cathy.

Sadly, businesses (especially small businesses) get hurt when our customers file bankruptcy.  As an entrepreneur myself, I have been on both sides of that table.  But when we decide to extend credit for services, we take a risk that we may never collect what’s owed us.

The stories we hear about vendors getting “stiffed” by Trump never state the year of the incidents.  If they occurred just prior to one of his bankruptcies, I can guarantee that his companies truly had serious cashflow problems, and were unable to pay suppliers their due.  If those vendors received any money before he filed bankruptcy, they were VERY lucky.  All payments made to vendors within ninety days of a filing are considered to be “preference payments,” and are subject to being recalled by the bankruptcy court.

By the way, in Chapter 11 the creditors vote on whether or not to accept a Debtor’s Plan of Reorganization.  After studying all the facts, they usually decide that receiving something is better than receiving nothing.  The major creditors in all four of Donald Trump’s bankruptcies involved sophisticated bondholders, not “Mom-and-Pop” investors as is often portrayed by the media.

In Trump’s first Chapter 11 (The Taj Mahal in Atlantic City) he had to liquidate assets, including his airline and his yacht, to honor his personal guarantees.  Furthermore, he lost 49 percent of his enterprise.  Trump did not come out ahead on any of his bankruptcies. While he received $40.5 million in stock in one of the companies, today that stock is virtually worthless.*

Frankly, I fault Trump for explaining his bankruptcies by saying that he “took advantage of the law.”  To the average person, that sounds self-serving, when he actually lost a lot in each case.  The Taj Mahal filing in 2008 was the result of the recession that affected all of the casinos in Atlantic City, something over which Trump had no control.  He should have explained that he only had two options, as I outlined above.  His ego causes him to always put a positive spin on everything.  In reality, he lost a lot of money in his filings, and eventually lost control of those enterprises.

* Per Michael Johnston, senior analyst for Dividend Reference, who also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barron’s, and USA Today, among other publications. He resides in Chicago.

Tomorrow’s Blog: “Trump’s Birther Movement proves that he is Racist!”