For some celebrities, all the fame and fortune comes with one other thing: bankruptcy. Why is there such a trend among celebs and what can you do if you are facing bankruptcy?
Celebs and Bankruptcy
While 50 Cent is one of the most recent celebs to file for bankruptcy, many have come before him. MC Hammer was forced to file for bankruptcy after exhausting his finances on a $30 million house (which included a 17 car garage), and numerous other expenses including thorough-bred race horses and a staff of 200 people. One of the most notable celebs to go bankrupt is presidential candidate Donald Trump. He’s been through 4 bankruptcies. And heavyweight champion Mike Tyson might be known for a lot of reasons, but one of the main ones is the fact that he went bankrupt by the time he was 37.
Unfortunately, in the sporting world, it’s a very common practice for celebs to go bankrupt. Many times this is the result of poor money management skills. It can be overwhelming and exciting to receive a multi-million dollar contract. Players that are unskilled with money management skills, or who grew up poor, will often spread their money so thin that they lose it all in the end, and are left with nothing. Coupled with expectations that the money will never run out, and the need to constantly stay up with the trends can mean financial disaster for some. Additionally, just because someone is talented in one area, it does not mean they are talented in all areas – including how to invest, or knowing how to manage their money.
The truth is, the average person isn’t that different from a celeb. While we might not be dealing with the same amounts of income, money management can be difficult for anyone. If you have found yourself having to deal with exorbitant amounts of debt, you’ll want to know what options there are for you, including debt consolidation and bankruptcy.
Consider Other Options
Before you decide on bankruptcy, you might want to see if you qualify for debt consolidation services.
When you’re facing large amounts of debt, the situation can feel pretty hopeless. Any money saved seems to drift away: either by being swallowed up by the unforeseeable (a flat tire, a broken appliance that needs to be replaced – you can’t just go without a refrigerator) or it’s already been “spent” and allocated to paying off something else. Regardless of your perseverance and the makeover you have done on your spending habits, sometimes controlling debt through spending less just doesn’t seem to result in more money. After penny counting for a few months people often become fed up and spend it all in a weekend as a reward for all the good spending habits they’ve acquired. Unfortunately, this still isn’t considered “being wise with your money.”
It makes sense that people often turn to debt consolidation as an alternative. Streamlining debts can help to free yourself from financial burden while lowering costs. But you’ll want to understand just what debt consolidation is so that you can decide if it’s for you. If you’re able to pay off your debts within 6 months to a year, you might just consider being really strict. If you look at your debt and see years and years of potentially impossible saving, then you might consider debt consolidation.
What Debt Consolidation Companies Do
A lot of times willpower is not enough to help debtors out of the hole. It’s important that you analyze your spending habits. Going out to dinner every night for a delicious but extravagant meal will not help you pay down your $33,000 Visa debt. You’re going to need to make some changes. But if you have made those changes and you still are not reaping the rewards of your new debt habits, then you might want to seek the help of an expert.
That’s exactly where a debt consolidation company comes in. These companies are kind of like your best friend that stops you from eating that fourth chocolate chip cookie. Debt consolidation companies are there to “save you from yourself” and help you make the right financial moves before your “inner cookie monster” takes over.
Here’s what a debt consolidation (a.k.a. debt management or credit counseling) does:
- Closes credit accounts so you cannot use them.
- Sets up an automated monthly payment based on your budget that gets distributed it to your creditors.
- In some cases, they can negotiate lower APRs or reduced late fees with your creditors
Considering Debt Consolidation
Debt consolidation can be helpful to anyone: whether you’re considering bankruptcy, or if you are just trying to get a handle on your finances.
What Is Debt Consolidation?
Debt consolidation means that all of your smaller loans get paid off with one large loan. So you essentially get one lump sum to pay off your smaller loans so that you only have one monthly payment rather than several monthly payments. The their behind this is one payment is easier to manage than several. And the main goal is it lower the interest rate and monthly payments while paying off your debt in a quicker amount of time.
It’s important to note that debt consolidation is not the same as debt settlement. Debt consolidation allows you to pay your debts in full without causing negative consequences to your credit. Debt settlement is the process of paying off debt to a creditor once a mutually agreed to sum is reached. This sum is usually less than what is owed. Typically, only unsecured debt (for example, credit cards and medical bills), is eligible for debt settlement. Debt settlement is often considered a risky process.
If your debt is too high to be consolidated, you might want to consider bankruptcy. A bankruptcy attorney will be able to look at your financial situation and determine if bankruptcy is a viable option for you. They will also evaluate your options for avoiding bankruptcy if other options exist. There are many different ways to discharge your debt and find the financial relief you have been looking for.
Or Should You File Bankruptcy?
There are numerous reasons that people file for bankruptcy. If debt consolidation is not an option for you, or you have exhausted your debt consolidation options, you should not feel ashamed to consider bankruptcy.
Bankruptcy means seeking help to get back on strong financial footing. There are various forms of bankruptcy that people file for, including: Chapter 7, 11, and 13.
Chapter 11 Bankruptcy
Under Chapter 11 bankruptcy, a business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits. If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.
A discharge of debts is the main reason you enter Chapter 11 bankruptcy, and it happens after you have made all required payments to your unsecured creditor class. After paying everything off you will ask the court for a discharge of the remainder of your unsecured debts. This motion prevents any of these creditors from collecting on any of the debts in the plan. This is the end of your Chapter 11 bankruptcy.
Chapter 13 and Chapter 7 Bankruptcy
Chapter 13 bankruptcy is designed to allow you to keep all of your property, but is also determined by your property. The amount of your nonexempt property affects how much unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans.
When you file a Chapter 7 bankruptcy, almost all of your assets and property are liquidated and thus become property of the bankruptcy estate that is sold to allow you to repay your debts. There are some exceptions to this though.
During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors. Just because your assets are being sold, that does not mean that all of your property needs to be sold.
Deciding on Bankruptcy
Filing for bankruptcy can provide a way to clear your debt while also giving you a fresh start. But many factors need to be considered before you decide to go through with bankruptcy. It’s not something that should be entered into lightly. It can impact your credit score and other aspects of your life for a long period of time, and should not be seen as a “get out of debt quickly” option.
Before you consider bankruptcy, evaluate your options. Considering working with a bankruptcy attorney to assess your situation. What are the types of debt you have and what are your goals when it comes to that debt? Remember that a bankruptcy filing will not eliminate certain forms a debt. If that’s the debt that you are dealing with, then know that bankruptcy will not help you.
It’s important to remember that many creditors will work with you to settle debt. They are often very willing to work with you on repayment plans that would allow you to avoid filing for bankruptcy.
Working with a Bankruptcy Attorney
At Resnik Hayes Moradi LLP, we will help you explore all of the debt relief options available to you. Though we specialize in bankruptcy law, we do not suggest bankruptcy as an option if we do not think it is the best option for them. We are committed to helping our clients resolve their debt problems, achieving true debt relief and avoiding potential debt consolidation scams. Contact us for a free consultation.