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Posted by: Walter Metzen
A federal judge recently discharged the bankruptcy case of rapper 50 Cent after he paid more than $22 million of his debt.
50 Cent filed for Chapter 11 reorganization in 2015, with debts of $36 million and assets of less than $20 million. The “Get Rich or Die Tryin'” artist, whose real name is Curtis Jackson, paid off a five-year plan early with $8.7 million of his own money and $13.65 million he received in a settlement of a legal malpractice lawsuit.
Jackson’s bankruptcy case started when a woman won a $7 million settlement against him in 2015 for posting a sex tape. Soon after, he filed for bankruptcy to help with that debt, as well as his failed business ventures.
But late last year, Jackson nearly was in hot water when he posed with stacks of cash on Instagram. A judge questioned if he was really declaring all his assets, but Jackson said he was merely living up to his perceived image — a famous rapper with loads of money around him — and that the cash was a prop.
In his response to the judge, 50 Cent said: “Just because I am photographed in or next to a certain vehicle, wearing an article of clothing, holding a product, sitting next to what appears to be large sums of money or modeling expensive pieces of jewelry does not mean that I own everything in those photos.”
Here are four things everyday consumers can learn from 50 Cent’s high-profile bankruptcy case.
1. Chapter 11 Isn’t Just for Companies — People Can File, Too
Let’s face it — none of us are like 50 Cent. We’re not celebrities and we don’t have his life, grandioses or not. But what lessons can we take away from his very public proceedings?
For most of us, it’s to know your bankruptcy and the rules, inside out.
Chapter 11 of the Bankruptcy Code usually involves a corporation or partnership, reorganizing to keep the business alive and pay creditors over time. But people in businesses or individuals also can seek relief in chapter 11.
For individuals, chapter 11 has some similarities to Chapter 13 bankruptcy, which is a reorganization of a consumer’s finances to pay creditors over 3-5 years. With the help of a bankruptcy attorney, chapter 13 filers work out a payment plan that allocates their disposable income into monthly payments.
Nearly anyone can file for chapter 11, whereas many small businesses are ineligible for chapter 13. Chapter 13 also is only available to debtors with regular income and subject to debt limitations — which, as of April 2016, were no more than $394,725 in unsecured debt (debt not backed by collateral, such as credit card debt) and $1,184,200 in secured debt (like mortgages and car loans).
2. Your Bankruptcy Case Can Last a Few Years, or a Few Months
A typical timeframe for a bankruptcy discharge varies depending on which chapter you file. For 50 Cent, he filed for bankruptcy in 2015 and had five years to pay off his debt, but paid up earlier this year.
Under Chapter 7, the debtor generally doesn’t pay back his or her creditors. Most people prefer to file under chapter 7, with common debts eliminated like medical bills or personal loans. Chapter 7 also is quicker than other bankruptcy proceedings, and typically lasts 4-5 months.
Chapter 13 filers who earn income that’s less than the state average for their family size enter a 3-year payment plan. Those who exceed the state average are bumped up to five years. The payment plan allocates consumers’ disposable income to make monthly, consolidated payments to creditors.
Chapter 11 can be a little more complex and expensive than chapter 13, and fewer types of debt are dischargeable. Special provisions do streamline these cases for small business debtors, though. Furthermore, Chapter 11 also does not require debtors to turn over their disposable income to a trustee, but the total value of his or her disposable income over a five-year period.
3. You Need to Be Honest with the Court
If you try to game the system, as it initially appeared 50 Cent had when he posed with stacks of fake cash, you could be in big trouble. Luckily, he was in the clear.
However, people enter bankruptcy court to receive a discharge, and the biggest way to screw that up is to be dishonest. Other than having your bankruptcy case dismissed, you could be fined big time or end up in jail.
Section 727 of the Bankruptcy Code lists the various grounds for objecting to a bankruptcy discharge, including:
—lying under oath;
—destroying records or failing to keep adequate records;
—no good explanation for a loss of assets; and
—concealing or transferring property within one year before filing in an attempt to defraud a creditor.
You must tell the court about everything you own, plain and simple. If a bankruptcy trustee expects you may have left out assets, they’ll schedule a 2004 exam and ask questions under oath.
It probably goes without saying, but social media can ruin your chances at a successful bankruptcy if a bankruptcy trustee looks through your accounts and finds something unsavory. That includes posing on Facebook with assets, like a car that you own but haven’t told the court about.
Finally, if it’s found you have concealed or intentionally transferred property before your bankruptcy case, you can be sued. You can also lose all non-exempt assets without any debt relief.
4. You Can Recover After Bankruptcy
Say you’ve made it safely through your bankruptcy proceedings. You breathe a sigh of relief. (If you’re 50 Cent, you posted on social media immediately afterward.)
Outside of the impact of bankruptcy felt during proceedings, bankruptcy and debt solutions can impact your credit score, but not as largely as you might think. So don’t put off filing for bankruptcy. The sooner you get help with your debt, the better your credit score will be in the long run — which will help you be more likely to get a future loan for a house, car, or rebuild credit with a credit card.
Make sure to review your credit reports, as all credit card accounts should have zero balances after a bankruptcy discharge. When opening a new credit card account, put small balances on it and pay them off immediately. Also, make sure to live within your means.
And beware: those annoying collectors may still call. However, collectors who ignore the discharge order are violating federal law, under section 524 of Title 11 of the United States Code. A discharge effectively operates as an injunction against continuing to collect or recover from the debt.
How to Get Help
If you’re thinking of filing for bankruptcy, we have several resources here that can guide you through the process. You can also use our site to find a lawyer near you for a free consultation.
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Walter Metzen is a Board Certified Specialist in Consumer Bankruptcy with over 28 years of experience. He’s represented more than 20,000 bankruptcy clients in and around Detroit where his firm is located. View his profile here.