Recently, Curtis James Jackson III, better known as the music , 50 Cent, filed for Chapter 11 bankruptcy protection. The move came after the entertainer was dinged for a $7 million dollar civil verdict in an invasion of privacy lawsuit brought by Lastonia Lewiston.
Ms. Lewiston’s suit was over a sex tape that 50 Cent acquired of her and a boyfriend, which the rapper posted online without her permission. 50 Cent’s attorneys told jurors that their client was told by Ms. Lewiston’s boyfriend that she would not mind the public posting, a contention that of course Ms. Lewiston disputed and which jurors agreed was not credible. To compound the violation of Ms. Lewiston’s right of privacy, 50 Cent provided his own narration of the tape online, calling himself “Pimpin Curly,” and made certain offensive comments about Ms. Lewiston and her boyfriend. Obviously, the jury was not amused.
Why did 50 Cent File for Bankruptcy?
Most people seek bankruptcy protection once debts become too overwhelming, and they do not want to lose their assets. But, 50 Cent is not poor or “bankrupt” in the classic sense of this term. His assets were reportedly estimated by Forbes at $155 million, making him the fourth wealthiest hip hop artist. He reportedly earned $100 million in 2007 in the sale of Vitaminwater. The rapper has earned millions more in recent years through sales of other various business ventures and interests and sales of his various recordings. So, was the rapper hiding various financial failures and was this judgment another setback in a series of other failures? Or was he just trying to avoid paying most of the verdict to Ms. Lewiston out of spite?
Why Did 50 Cent File for Chapter 11 and not Chapter 7?
Chapter 11 bankruptcy is generally for corporations, partnerships and limited liability companies that wish to remain viable but need to reorganize their operations and finances so as to meet mounting debt and find a way to profitability. Individuals can avail themselves of Chapter 11 as well. In 50 Cent’s case, he may have chosen Chapter 11 since he likely did not meet the means test for filing Chapter 7, or the debt limit for a Chapter 13, which is only $383,175 for non-contingent, liquidated unsecured debt, and $1,149,525 of non-contingent, liquidated secured debt. The judgment in the Lewiston sex tape case alone exceeds the unsecured debt amount.
A Chapter 13 is used primarily by consumers to save a home from foreclosure or who may have non-exempt real or other property that would be lost in a Chapter 7, or have a small business with personally guaranteed debt obligations.
Chapter 7 was probably not an option for Mr. 50 Cent even if he had met the means test. While the media reports on the Los Angeles bankruptcy do not state whether 50 Cent’s interests and assets were incorporated, they typically are for stars who have considerable assets that need to be protected in lawsuits like the one filed by Ms. Lewiston. If so, then any corporate assets were protected so long as all corporate formalities were met since it is unlikely his corporation(s) were at all liable. But there were likely other reasons why 50 Cent filed for bankruptcy since by all appearances, he could have easily paid Ms. Lewiston and moved on.
Other Reasons for Filing
The lawsuit was undoubtedly against 50 Cent personally. If he could have filed under Chapter 7, he probably have discharged at least $5 million of the judgment but not the additional $2 million in punitive damages, which are not dischargeable. He also risked exposing other assets such as non-homestead property and automobiles that are not exempt.
In any case, the Chapter 11 filing did stay further proceedings in the case so that Ms. Lewiston as the judgment creditor was not able to initiate any collection activities.
A look at 50 Cent’s petition showed that he was claiming between $10 and $50 million in assets and debts, quite a departure from his estimated net worth asserted by Forbes. His attorneys have made vague statements claiming that the filing allows the star to “address various professional liabilities…and to position the future of his various business interests.” These cryptic comments could be hiding the fact that the rapper may have overreached and now has less assets and more debts than has been assumed.
In a Chapter 11, the debtor has to propose a repayment plan that the various debtors vote on and either accept or reject. If rejected, they can submit their own plans. This process can take years while the parties negotiate and work out an acceptable plan. In the meantime, 50 Cent can continue with his various ventures while Ms. Lewiston waits in line probably for the next several years before she recovers anything for her troubles.
Consult the DCDM Law Group
Bankruptcies are designed for individuals and various business entities to get out from mounting debt and retain assets in many cases. Contact a highly experienced Los Angeles bankruptcy attorney from the DCDM Law Group if you are experiencing financial difficulties and are contemplating bankruptcy as an option.