On Monday, Curtis Jackson — better known as the rapper 50 Cent — filed for Chapter 11 bankruptcy protection.
In May, Forbes estimated his net worth to be $US155 million, making him one of the richest rappers in the world.
So why file for bankruptcy protection?
“The filing allows Mr. Jackson to reorganise his financial affairs, as he addresses various professional liabilities and takes steps to position the future of his various business interests,” the rapper’s attorney said in a statement to Billboard. “This filing for personal bankruptcy protection permits Mr. Jackson to continue his involvement with various business interests and continue his work as an entertainer, while he pursues an orderly reorganization of his financial affairs.”
“Reorganise” is a vague term. Specifically, Chapter 11 allows the debtor to create a plan to pay his debts and how much of them he’s able to pay, and then present it to his creditors for approval, explains Robert J. Semrad, senior partner at DebtStoppers Law Firm of Robert J. Semrad & Associates, LLC.
The debtor uses both his existing assets and any income going forward for these payments. And while he’s putting together a plan, his creditors have to leave him alone — that’s where the “protection” comes in.
Usually, once the debtor has made the payments determined in the plan, any remaining debts or amounts are discharged, with the exception of certain types: taxes, student loans, child support or alimony, criminal fines, and debts of which the debtor is aware but hasn’t included in his plan.
Chapter 7, on the other hand, would liquidate assets and divide them among remaining creditors in a one-time payment, discharging debts that the existing assets don’t cover except for those that fall in the categories listed above.
To file, a debtor has to show that they cannot keep pace with their debts, explains Complex. They must be able to prove that they will run out of money if they keep paying at the current rate, or that they need a chance to restructure their assets in order to have enough to pay.
Once a debtor has filed, the process takes time. “When bankruptcy is filed, all the creditors have to stop any collection activities unless they have permission from court,” Semrad says. “During that time, the debtor has months or even years to put together a plan to show how he’s going to pay and how much he’ll pay.” Semrad has seen Chapter 11 cases stretch on for up to four years before the repayment plan is implemented.
“Walt Disney had filed for bankruptcy before. Donald Trump has filed bankruptcy,” 50 Cent told E! News on Tuesday while promoting his new movie, “Southpaw.” “It means you’re re-organising your finances. But it does stop things from moving forward that you don’t want moving forward.”
The rapper may be referring to the ruling that came through only days before his bankruptcy filing: He was ordered by the court to pay $US5 million to his rival Rick Ross’ ex-girlfriend, Lastonia Leviston, who sued him for posting a sex tape online in an alleged attempt to embarrass Ross.
“Yeah, I need protection,” 50 Cent said on TBS’s “Conan” this week. “You get a bull’s-eye painted on your back when you’re successful, and it’s public. You become the ideal person for lawsuits.”
In fact, Semrad says that the ruling in this case, from the New York State courts, may shed some light on why 50 Cent decided to file now: Leviston was awarded $US5 million, plus punitive damages, which haven’t yet been determined. Those damages have the potential to increase her payment to as much as $US10 million or $US15 million, Semrad estimates.
Semrad explains that the timing of the rapper’s filing makes it likely that he’s trying to achieve two things in particular:
- To get the Leviston case moved from the New York State courts, which have already ruled in her favour, to the bankruptcy courts, which may choose to award a lesser amount in punitive damages in order to leave more money for 50 Cent’s other creditors
- To delay any debt payments for as much time as possible, in the hope that creditors will become impatient and willing to take less than they’re owed, just to have the money in their pockets
“The $US5 million has already been determined,” says Semrad, speculating 50 Cent might want to “put the $US5 million into the bankruptcy case and treat it like any other debt.”
“We think this is a failed attempt to avoid paying this woman who has been hurt so badly by his actions,” Hunter Shkolnik, Leviston’s lawyer, told Business Insider.
An anonymous source familiar with the matter told Business Insider that if this is indeed an attempt to delay or lessen the payment to Leviston, the rapper isn’t the first to use this tactic. For instance, O.J. Simpson was still held in prison but could not duck legal liabilities to Nicole Brown Simpson’s survivors, even after his bankruptcy filing.