What Happens If Trump Can't Pay His $454 Million Bond

Donald Trump

NPR: Here's what happens if Trump can't pay his $454 million bond

Assuming the question is “what happens if Trump can't pay his $454 million bond?” 

The question over-simplifies the problem.  Donald Trump is one of nine Trump-related judgment debtors, with joint and several debt.

Several of the entity judgment debtors own real estate in NY County.

The judgment is a lien on those entities’ real estate.

Assuming those entities have mortgages, the judgment lien may: a.) trigger a default under those mortgages; and b.) make for unhappy, aggressive mortgagees.

Still, assume that DJT owns nothing. The other defendants have assets and other more senior creditors.

What’s a judgment creditor to do? My, oh my.

1. serve restraining notice on the judgment debtors and anyone:

a.) holding their assets (e.g banks)

b.) owing them money (e.g. tenants).

2. move for a receiver to take charge of the judgment debtors’ assets.

The receiver would then conduct sheriff sales of the debtors’ assets. Liens would be paid in the order of their priority.  Sheriff sales are essentially “fire sales” with discounted returns

One might assume that the properties have sufficient equity to pay the judgment.

Anticipating a shortfall the state or receiver could do depositions (CPLR Art 52 Supplemental Proceedings) to find other assets, restrain them and sell them.

A judgment creditor could do these steps on their own.  However, a receiver can collect all of the income pending a sale of the assets.

Trump now has two conspicuous judgment creditors.  They might locate a third or find someone with a claim which is “not subject to a bona fide dispute.”  With a third creditor, they could file an involuntary bankruptcy petition against these judgment debtors.  They would have to show that the debtors are generally not paying their debts as they become due.  The debtors’ present cash flow pickle, shows this may be the case.

However, these judgment debtors in bankruptcy isn’t the economic result the judgment creditors want.  A bankruptcy case means they have to share with all of the debtors’ creditors, except if property subject to their liens gets them paid. It’s possible someone files an involuntary to put Trump out of our misery.

Trump reposts

The debtors could simply respond to the attacks described above. That will require resources which are frozen.  All delaying the inevitable

They could file for Chapter 11.  Anticipate creditors moving for a Chapter 11 trustee to administer the cases.  One need only show Trump’s business record to convince a court to do that.

However, each entity filing their own 11 to first address their senior liens could be productive against junior creditors.

Trump may also be moving assets around to defeat his creditors.  This might result in bankruptcy crimes. 18 USC 152

Another avenue, NYCPLR 5240.  Obtain a protective order with provisions enabling the judgment debtors to sell assets in an orderly manner.  This can preserve the assets value, increase the recovery for creditors, and possibly preserve equity. 

More on this at https://www.bankruptcystrategies.com/a-new-york-state-alternative-to-chapter-11-for-judgment-debtors/