Is Bankruptcy Different for the Wealthy?

There’s a saying that I’ve heard attributed to Martin Luther King that goes something like “In this country, there is capitalism for the poor and socialism for the rich.” I’m not sure if MLK was the one who said it or not, but I think there is some truth to it.

Consider, for instance, the Donald and the boys at Long Term Capital Management. I understand that twice, properties owned and managed by the Donald declared bankruptcy. I understand that in both instances, he continued to collect a hefty salary (for running the company in such a way that it had to declare bankruptcy?). Additionally, he doesn’t seem to have trouble finding new investors. The boys at LTCM had a similar story, though on a bigger scale. LTCM’s demise (I don’t recall if it every actually declared bankruptcy) even required the Fed’s intervention, but a “where are they now” shows the main characters at a new hedge fund, each of whom is presumably making more money per year than most readers of this blog put together and we’re a reasonably well educated bunch.

Now, I’m fortunate in that I know almost nothing about bankruptcy. I hope to keep it that way. But I have come across people who have had to declare bankruptcy. They weren’t living well before it, and they weren’t living well after either.

Are the Donald and the LTCM boys a special case? Or do big losers really come out well while small losers get hosed? (There’s the old saying: If you owe $10,000 to the bank, you’re in trouble, but if you owe $100 million, the bank is in trouble.) If the latter, how does it happen? If there is a disparity in how the rich and the poor fare after bankruptcy, are the new bankruptcy laws going to make it better or worse?