Bankruptcy expert Conde Cox updates his prediction from 50% to 60% that Trump will be forced to file Chapter 11 bankruptcy.
Trump needs to hold his creditors at bay. He isn't liquid, and the assets he has for possible sale have a low cost basis.
Today Conde Cox describes Trump's bankruptcy options. Cox is a commercial and business disputes lawyer and an expert on businesses in trouble. He is the immediate past president of the Federal Bar Association — Oregon Chapter. He has been rated for many years as a Thomson-Reuters "Super Lawyer" in the field of business bankruptcy.
Tomorrow I will offer my own prediction. Cox's final sentence points in the direction I think more likely.
Guest Post by Conde Cox
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| Conde Cox website |
Trump is facing something worse than a cash crunch: He is facing forfeiture of low-tax-basis real estate assets to his judgment-holding creditors. Such forfeitures not only would result in fire-sale prices for his best assets, but also would constitute a “taxable disposition” of these assets. Many of those have an ultra-low tax basis as a result of many years of depreciation deductions or as a result of having been acquired via long-ago tax-free 1031 exchanges. With a forfeiture of low-basis assets, Trump would lose the properties but would not receive the cash he needs to pay the capital gains tax he would owe.
[Editor's note. That would probably be a 35-40% tax, between federal, state, city, and other taxes. So if he forfeited $500 million, he would owe nearly $200 million in taxes.]
Normally, a real estate owner like Trump would not sell these assets but, instead, would engage in a 1031 tax-free exchange and thereby acquire a new property. (A 1031 exchange is not possible under a judgment creditor seizure of the assets.) Without a 1031 exchange, developers like Trump would simply keep these low-basis assets until they die. Then their heirs would inherit the property and avoid the capital gain by taking the perfectly legal "step-up in basis" for the property. By acquiring the properties at the fair market value at the time of Trump’s death, his family avoids paying tax on the increase in value of the property over the decades. In America that’s how the ultra-wealthy avoid taxation of their most valuable assets -- they die with them.
Trump has a serious tax problem.
He can avoid triggering the judgments and tax hit by either filing Chapter 11 which does not require a bond, and requires only his signature and a $1,400 filing fee, or obtaining a bond for the full amount of the judgment, plus interest that will accrue on the judgment during the couple of years the appeal is pending. He can only get this bond if he has liquid assets or high-value illiquid ones with little or no encumbrances. He would avoid triggering the capital gains tax if they are merely posted as collateral to the bonding company. The bond would have to be about $500 million to cover the New York Attorney General's judgement. It is accruing interest of $30 million a year.
It seems, from new reporting, that Trump has been turned down flat by over 30 different bonding companies. This is not surprising. We know Trump has been convicted of lying about the value of his assets, and he just posted s bond of $100 million for E. Jean Carroll. That case probably tapped most of his cash and probably imposed liens on some of his properties.
Trump is publicly begging the appellate courts not to require that he follow the law every other judgment debtor must follow: Get the bond, or lose your assets, or file Chapter 11.
A Chapter 11 filing by one or more of Trump’s various companies could allow Trump to avoid filing Chapter 11 personally. This is possible if those companies, and not Trump personally, own the more valuable assets. It is far more likely that the assets that need protecting, including his famous Trump Tower three-story condo and the commercial space in its lower floors, are in Trump's personal name. Possibly a filing by one of his entities (such as 40 Wall Street LLC, which is also a co-defendant under the NYAG judgment) could provide a basis for Trump asking the bankruptcy court to issue a “channeling injunction” or “Section 105 supplemental stay” to protect Trump personally. This is usually refused, but may be worth trying here with a new judge, i.e., the bankruptcy judge in Florida.
Two weeks ago I predicted that there is about a 50% chance that Trump files Chapter 11 soon. I now increase that prediction to 60%, because of the failed attempts by Trump to get the bond.
Trump entities have used Chapter 11 six times in the past. It would mean no payments to the judgment creditors for at least a year, no capital gains tax bill, no posting collateral, and the right to continue to operate his businesses in the ordinary course of business. No trustee would be appointed in his Chapter 11 case, and the New York receiver now running his New York businesses would stay in place. He then will appeal and try to settle the Carroll and New York AG judgments while the appeals are pending. The current U.S. Supreme Court dislikes punitive damages. Settlement for less than 50% is entirely possible.
He needs to stop the asset foreclosures, and the way to do that without a bond is by filing Chapter 11.
Unless--
There is one other way. He could get the money he needs from Putin, the Saudis, Musk, or some other very deep pocket.
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9 comments:
Poor Trump is the victim of “Political Persecution and Election Interference at the highest level in history,” just because he committed a bunch of crimes. A GoFundMe was started for him, which gives us a handy numerical value for how stupid his supporters are, but it’s only collected about $1.5 million. That’s pretty stupid, but a far cry from what he needs.
But don’t worry – now that he’s put Lara Trump in charge of the RNC, Republican donors can pay for his criminality whether they want to or not. The GOP can be one big happy crime family.
A dirty, corrupt person with many skeletons in the closet not run for office. Typically, mafia-types keep a low profile. tRump's ego, arrogance, privilege, sense of entitlement and lust for power and attention got the best of him.
The logical answer is to get it from Russia. That would be smart for Putin because, if Trump became president again, Putin could demand the US stop funding Ukraine. In other words, Russia could control our country . A Russian dream.
Or he could get it from Musk just because he’s a Republican. The terms could be payable in 50 years when both are long dead, then quietly forgiven.
The Saudi’s? Pocket change. After all, for some reason they gave his son in law $2 Billion to play with.
So I don’t think he’s sweating very much right now. Somebody will come up with it. It’s just a matter of who.
The Catholic hierarchy closed churches and sold assets when it finally got caught and had to pay sex abuse victims for the Church's corruption and depravity.
Maybe his golden children will start talking if he wastes all of the family money on his crimes and corruption.
If you've ever needed to qualify for a security clearance having unsecured outstanding debt and/or foreign entanglements with money or obligations is an automatic disqualification. I wonder how much damage has already been done by Trump and his family members. Curious, to me, that Republicans are just now, realizing their obligation to throughly investigate Hunter Biden and his dad disproven financial deals, but remain satisfied that Trump's actives now and as President did not rise to DefCon5.
Trump may be an international object of ridicule, but don’t underestimate him. He’s highly skilled at attracting voters by appealing to their spirituality. He has Christians convinced that he’s been sent by God to be their retribution, so now he’s working his MAGA magic on the Jews, telling them: "Any Jewish person that votes for Democrats hates their religion. They hate everything about Israel, and they should be ashamed of themselves, because Israel will be destroyed."
Proving once again that civil plaintiff lawyers (counting the NYAG here) are more effective than criminal prosecutors or regulatory authorities. Just trying to get a Rise …
Putin will own the US if republicans get their way.
Just think of all those servicemen/women dead, disabled and homeless to protect democracy - sold out by the GOPee.
Thank you for this great summary of the bankruptcy and tax rules along with Trump’s options. Bankruptcy seems to me his best move as a practical matter, but I wonder whether he would want to admit to be not-a-billionaire after bragging forever that he is. His ability to avoid accountability for a lifetime makes me wonder how he’ll wiggle out of this situation. As for the possibility that his wealth and business entities finally take a serious hit, I’ll believe it (and celebrate) when I see it.
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