Celebrity Bankruptcies Pt II

Seems like this week the theme has been bankruptcy..

Monday we discussed Detroit filing for Chapter 9 which is reserved for cities, municipalities, etc..  A judge originally blocked it because being filed in Federal rather than state court, it meant pensions could be modified...

But like all things in this corrupt system, the bankruptcy was allowed to go through Federal channels so before its all over expect Detroit pensioners to receive less than before... 5%?  10%?  20% less?  Who knows..

Just expect this to be the test case for other major cities..

Tuesday we provided the terminology and basic process when filing for personal bankruptcy..  Of course there's other ways to beat the system and not file yet discharge debts but that's for another posting...

For those in serious debt who just want to move on with their lives, we provided the primer...

Wednesday was part I of our 'Celebrity Bankruptcies' so people could understand not to feel ashamed or embarrassed filing because it can happen to us all..

Thursday.. Well.. its summer..

So here we are Friday with Part Deux...

M.C. Hammer

Whether or not you've heard of the famous rapper is really more a generational thing...

Back in the early 1990's, there was no one bigger or more successful in that music genre.  He even made parachute pants look cool.. ehh.. sorta...

Mostly based on his song "U Can't Touch This" which heavily sampled Rick James' "Superfreak",  Hammer (Stanley Kirk Burrell) ultimately sold more than 50 million records globally in his career.

During Hammer's peak, he was worth $33 million..

A mere five years after that song was released (1996), Hammer filed for Chapter 11, telling a California bankruptcy court he was $13.7 million in debt and had assets of only $9.6 million.

So what happened?

Well to put it bluntly, the man had a spending addiction..

He spent at estimated $12 to $20 million building a custom mansion on a 20-acre estate.

Hammer also had a Huge entourage of 60 onstage performers and 100 backstage members which cost him millions of dollars..  Guess he needed one person to hand him a soda, another to offer a glass and a third to do the pouring...

Among the debts was a $110,000 sum owed to an interior decorator whose business failed because of Hammer’s nonpayment.

Ultimately after his meteoric rise and fall, Hammer became a Minister... An extremely well dressed one...

Walt Disney

Disney was fortunate because his bankruptcy experience came at the ripe young age of 21 before he became rich...

He had founded a company called Laugh-O-Gram in the early 1920s and based it in Kansas City, MO as an early attempt at an animation studio, which set out to make a film version of Lewis Carroll’s Alice in Wonderland.

The production was plagued by difficulties and the expense of hiring and relocating animators to the midwest..  Ultimately, a near-indigent Disney declared bankruptcy...

Of course we all know what ultimately happened afterwards with the success of Disney as a corporation today with total revenues of more than $38 billion last year....

But most people don't know the company almost went bankrupt in the late 1950s due to the making of 'Sleeping Beauty'.

The film took almost a decade to make due to the intricate and elaborate background drawings all done by hand.  It is truly Disney's most visually stunning and breathtaking film in terms of the amount of artistic detail displayed in every frame

The film cost $6 million- the equivalent of $48 million today, and lost money on its initial theatrical release because audiences seemed to find the story too derivative of Snow White and Cinderella.

The high production costs along with the underperformance of much of the rest of Disney's 1959–1960 release slate resulted in the company posting its first annual loss in a decade for fiscal year 1960..

Massive layoffs were done throughout Disney's animation department to avoid a potential bankruptcy...

Ultimately "Sleeping Beauty" made up its losses and turned a profit but Disney swore he'd never spend so much time and money to make a film again.

Stan Lee

Stan Lee (born Stan Lieber) is a comic book writer, editor, publisher, media producer, voice actor and former president and chairman of Marvel Comics

Despite the massive success of comic book heroes like Spider-Man, The Incredible Hulk and The X-Men, Stan Lee had to declare bankruptcy in 2001 when his dot.com start-up, 'Stan Lee Media', a web-based comic book venture quickly burned through its capital like so many other firms inflated by the tech bubble.

Adding insult to injury was that Lee’s partner, Peter Paul, was accused of securities fraud and stock manipulation and had to be extradited back to the US from Brazil where he hid to avoid prosecution..

Lee was never implemented in the scheme.

By 2006, Lee had been with Marvel Comics an amazing 65 years and due to the immense popularity of his comic book creations on the big screen over the last decade, Lee has little to no financial worries any longer..

Nicolas Cage

Did you ever wonder why for the past few years, it seemed Cage was in every movie and all of them pretty terrible?

Well the reason was he was living paycheck to paycheck to pay off $6 million in IRS debts

He also spent money like a crazed banshee-- two castles, 15 palatial homes, a flotilla of yachts and a squadron of Rolls Royces...

~ Cage's former mansion in Bel Air

According to deposition of Cage's former business manager, n 2007 alone, "Cage's shopping spree entailed the purchase of three additional residences at a total cost of more than $33 million; the purchase of 22 automobiles (including 9 Rolls Royces); 12 purchases of expensive jewelry; and 47 purchases of artwork and exotic items"

Prior to Cage's bankruptcy filing in 2009, based on his lavish lifestyle, he needed $30 million yearly just to keep afloat!

~ Another of Cage's former mansions

Cage's financial collapse came in 2008 when real estate values plunged and most of his residences turned "upside down, just as the global credit crunch made it impossible to cover his endless cash calls by borrowing more money

And that is the reason you saw former Oscar winner for 'Leaving Las Vegas' appear in crap like 'Bangkok Dangerous', 'The Sorcerer's Apprentice', 'Season of the Witch' and a sequel of sorts to 'Bad Lieutenant'

__________
Well..  We don't think we can find another celeb to top that one..

Happy Weekend..  Be back on Monday...

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Celebrity Bankruptcies

Yesterday we provided a basic primer on personal bankruptcy-- the different kinds (Chapter 7 vs 13, etc..) and in very general terms, what to expect if you're in a position where ultimately you have to file.

Today's post will be covering some famous celebrity bankruptcies.

Many famous people over the years have had to file-- more than you'd think actually-- and the point of this exercise isn't to evoke scorn nor sympathy for their former financial plight..

Its more to show that filing for bankruptcy isn't the 'boogeyman' some would like to make it out to be..

If you think of it as a figurative 'tunnel', then like all tunnels, there's light at the end of it..  And its important you do not feel shame or embarrassment if you are one thinking of, or in process of clearing debts.

The vast majority of normal everyday people don't get to that stage because they took weekly vacations to the Caribbean or the south of France while draping themselves in white diamonds and filling their bellies with beluga caviar...

For most people, its really not their fault..

Sometimes all it takes to find oneself in serious financial difficulty is to be physically ill at the wrong time or have a child who sustained injury while not having proper insurance...

Those medical bills add up quick..

Now in the case of celebrities, you are certainly more likely to see their financial doom come from extravagance and a lack of serious, thoughtful financial planning..

Here are some examples over the last 10 years or so...

Gary Busey

In February, 2012 Busey had to file for Chapter 7 bankruptcy...

His total assets after a 25+ year movie career added up to less than $50,000 while his liabilities added up at minimum $500,000...  This included debts owed to various lawyers, the IRS, Wells Fargo bank, Santa Monica UCLA Medical Center, and a storage company

Back in Dec, 1988 Busey suffered serious head injuries when he was thrown off his motorcycle while not wearing a helmet..

~ Busey, early 1980s pre-accident

We are guessing he did not carry proper medical insurance to cover such serious injuries and this event was a big contributor in Busey running out of money as well as seeing his acting roles dry up..

That and substance abuse problems...

Sherman Hemsley

Hemsley passed away a year ago today (July 24th).. He was 74

But a decade or so prior in 1999 he was forced to file for Chapter 13 saying he lacked sufficient funds to pay back a $1 million loan from a Las Vegas investment corporation, as well taxes owed to the IRS.

Actually the 'why' Hemsley would borrow the money is interesting and if you think about it, quite sad..

Hemsley decided in the mid 1980's after a decade starring as iconic bigot George Jefferson on “The Jeffersons” that it was time to take a shot at big screen stardom.

So not only did he star in and croon the theme song to the 1987 comedy 'Ghost Fever', he also funded the film out of his own pocket..

Never heard of it?  Must be why it bankrupted him...

Shot in 1985, Ghost Fever floundered for two whole years before finally being unceremoniously dumped into a handful of theaters and later onto home video.

~ Movie Tagline: "A Contagious Comedy for the Whole Family!"

Its director was so unhappy with the finished film he insisted on an “Alan Smithee” credit. This is done when a director doesn't want his name attached to a shit project and hurt his chances at future work, so that fictitious name is applied..

Sherman Hemsley lost the $3 million he personally invested, beginning his decade long road to financial ruin that ended with him declaring bankruptcy in 1999.

Kim Basinger

In 1989, the Beautiful actress and former model was persuaded by family members to buy a small town in Georgia called Braselton (30 miles away from Athens, Ga. where Basinger was born) for $20 million, in partnership with the Ameritech Pension Fund.

The idea was to turn the town into a tourist attraction featuring movie studios and a film festival..

Unfortunately Basinger found herself being sued for breach of contract after withdrawing from a terrible and disturbed film called Boxing Helena.

Unable to pay the resulting $8.1 million in damages, she filed for bankruptcy in 1993 and two years later sold her stake in Braselton to Ameritech.  A higher court overturned the judgment against her, and she settled with the studio for $3.8 million.

Basinger’s fortunes soon turned around, however.  In 1997, she attained the pinnacle of Hollywood artistic recognition, winning an Academy Award for her performance as a Veronica Lake-lookalike call girl in 'L.A. Confidential.'

Wayne Newton

Even 'Mr. Las Vegas' had to file for bankruptcy...

In 1992, Newton filed for Chapter 11, despite having been a working entertainer since high school. (His first television appearance was at age 19, on The Jackie Gleason Show.)

Newton was forced into bankruptcy because of approximately $20 million of debts he incurred in the early 1980s while suing NBC for libel for reporting that organized crime was involved in his purchase of a hotel casino.

Originally Newton had won a libel award of $22.8 million in 1986 which would have been enough to pay his legal fees but a  year later a judge reduced the award amount to $5.3 million

To make matters worse, three years later in 1990 another judge overturned the entirety of the reduced libel award so that Newton walked away after 10 years of legal battles with Zero won.

By 1999, Newton was back in the black, but his financial issues continued when in 2005, the IRS sued him for more than $1.8 million in back taxes and penalties.

In 2009, officials at a Michigan airport claimed that Newton owed more than $60,000 in unpaid storage fees after abandoning a plane there more than three years previously. Newton later had the plane disassembled and shipped to his Vegas estate, Casa de Shenandoah, where he kept it in the yard.

And you thought Wayne's biggest problem was keeping his pearly white chompers all nice and sparkly...

Mike Tyson

The former undisputed heavyweight champ's financial woes have been well documented..

In 2003, Tyson filed for Chapter 11 after having received and then squandered nearly $400 million in ring earnings.

Tyson spent extravagantly on mansions, Bentley cars, jewelry, and even pet Bengal tigers while buying gifts for his lavish entourage..

So if you're wondering why there was the scene in 'The Hangover' where the group steals one of Tyson's tigers which Iron Mike has to later go and retrieve, it was based on Tyson's love and purchasing of the animal to himself and others..

According to the NY Times, one example of Tyson's many extravagances was that in 2002, "he walked into a Las Vegas jewelry store and picked up a $173,706 gold chain lined with 80 carats in diamonds. But he never paid for the fabulous jewelry, which is among the $23 million in debts specified in the Chapter 11 petitions"

~ Tyson having a 'bite' with Charlie Sheen.. pun pun pun..

Just something about the profession of boxing...  Joe Louis, Riddick Bowe, Ali, Evander Holyfield, Tyson...

Seems there's no quicker way to go from the penthouse to the poorhouse..
____________

Barring any financial news deemed more important to cover, we will resume this topic of 'Celebrity Bankruptcies' with our next post...

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Personal Bankruptcy- A General Overview

Today we're going to focus on personal bankruptcy..

Its a funny thing-- If you're a corporation, going bankrupt attaches no social stigma whatsoever...  

Nothing to it.. File a 'Chapter 11', some creditors get burned, there's restructuring of payments and then the business continues operating as normal...

The public really doesn't care or in most cases even know..

Now when its personal filing, then the individual is supposed to feel some kind of shame or remorse, and particularly when its a famous celebrity doing the filing, they're are ridiculed.

Funny double standard we set up...

Most people don't know much about bankruptcy-- even those who've had to file, basically put their trust and faith in some scavenger attorney to save their financial rear-ends, never realizing until its too late your attorney really works for the other side..

So we're just going to give you a brief, easy to understand primer of  the various types of bankruptcy and how the process works generally..  

Before we begin, if you are thinking of filing, don't base your decision solely on this posting-- do the necessary research to find out what's the best course of action for you.  And most importantly, do not feel any embarrassment or shame for doing so...   

Corporations certainly do not...

We begin..

In Title 11 of the United States Code (the Federal Bankruptcy Code), there are four bankruptcy filings:

Chapter 7 - Liquidation

    

Chapter 11 - Reorganization

    

Chapter 12 - Adjustment of Debts of a Family Farmer with Regular Annual Income

    

Chapter 13 - Adjustment of Debts of an Individual with Regular Income

There is also a Chapter 9 but that deals with municipalities such as what's occurring with Detroit

We will take a moment to explain each one but as an individual, if you ever did need to file at a future point, you'd be concerned with either '7', '11' or '13'

Chapter 7:

Companies, married couples and individuals are allowed to file..

A debtor filing for this is essentially scrapping everything and starting over, hoping for a clean financial slate. 

Once the filing is underway, an administrator or trustee is appointed to maneuver the sale of the debtor's assets. This does not necessarily mean that everything the person owns is sold.  

Sometimes an individual has nothing or holds possessions it is not legally obligated to sell thus the creditors do not receive any repayment yet the debts are fully discharged.

Both federal and state laws allow for certain exemptions such as his or her primary residence or personal items like clothing. 

Now once the debtor's assets are liquidated, the trustee pays certain creditors a portion of the money raised.  Usually you pay your attorney who keeps a percentage for him/herself..

As we said before, not all of the creditors receive money from the proceeds, so many of those financial obligations are "forgiven," or discharged. 

Once someone has filed for bankruptcy under Chapter 7, he or she cannot file again for seven years, and debts that were not forgiven in a previous filing will not be discharged in the next filing.

Important: there are certain debts for which the debtor will receive no forgiveness. Alimony, child support and taxes are not discharged under any bankruptcy filing, and student loans** are seldom discharged. 

So if a lot of your debt falls into these categories, you might be better off filing Chapter 13.

** As we often try to warn people here, don't attend college and take on student debt unless you really have a game plan mapped out for a career path where there's a true job market need for your skill sets.

Chapter 9:

As mentioned before, this only applies to a municipality, such as a city, town, village, county, taxing district, municipal utility, and school district...

 Under Chapter 9 Bankruptcy, the municipality is expected to reorganize and propose a plan of repayment, similar to Chapter 11, which we will address right now...

Chapter 11:

This was originally intended only for large corporations but now individuals can file as well though to be honest very few do so..

When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11.

In Chapter 7, the business ceases operations, a trustee sells all of its assets, and then distributes the proceeds to its creditors. Any residual amount is returned to the owners of the company. 

The simplest way to understand is to picture the famous Bain Capital from former Presidential Candidate Mitt Romney's past..

A company is bought on the down side.. '7' is filed and certain entities like the filer profit off the sales while the creditors recoup back pennies on the dollar, taking sizable losses

In Chapter 11, in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court.

In other words, the company or business continues to operate and function.  K-Mart and Sears are examples..

We won't go into too much more depth on this since our focus is personal not corporate bankruptcy.

Chapter 13:

For simplification purposes we won't focus on Chapter 12 here since '12' and '13' are basically the same filing, except that Chapter 12 is for family farmers and Chapter 13 is for other individuals. 

As long as you have a steady, reliable income, less than $269,250 in unsecured debt and less than $807,750 in secured debt, you can file Chapter 13.   

If your debt load was higher, in all likelihood you'd file as Chapter 11.

However, most people filing who do not do so under '7' do so here...

Once the filing is made, the debtor is assigned a trustee, with the two developing a proposal for a repayment plan. The court decides whether to accept or alter the plan or dictate another repayment plan altogether. 

Once the plan is decided upon, it can last anywhere from three to five years.

So why someone would file for 13 instead of Chapter 7. There are a few reasons for this:

1)   Under Chapter 13 filings, debtors do not have to liquidate their assets -- they actually get to keep everything, not just the items that meet the legal exemption.

2)   In most Chapter 13 cases, the debtor is repaying only a percentage of what he or she actually owes -- sometimes as little as 30 cents to 50 cents on the dollar.

________

In a way, we're quite fortunate in America to have this outlet to discharge debts...  

In places like Ireland and Spain, all debts stay with you forever (much like student loans for us) and in order to not be on the hook to repay, people have to leave their homeland to immigrate elsewhere.

There was also a time when debtors were thrown into prison..  This was the original purpose of establishing both the American colony of Georgia and the Oceania colony and eventual nation of Australia in the early 1700's

Of course, nothing is done for charity sake..  

The system makes money off one's financial successes via higher income taxes, etc..,  and it makes a hell of a lot of money off an individual's demise (attorneys, court costs, liquidators, etc..)

Unless something more important comes up in the news, our next posting will focus on some famous people who had to go through personal bankruptcy in the last decade, how they racked up their debts and how they got through it...

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Detroit: America's Urban Ghost Town

"Detroit, Detroit... Its a Hell of a town..

You better stay indoors when the sun goes down."

Today we're going to talk a little bit about Detroit and their recent attempt to file Chapter 9 bankruptcy as a municipality.

We freely admit we haven't been following Detroit's economic demise as much as other topics-- we suppose if you want to see the origins of this collapse of a once bustling city, rent a film Michael Moore made in the mid 1980s called 'Roger and Me'

The 'Roger' in question was Roger Smith, President of GM at the time...

But even though we haven't been following super closely the daily destruction of the US automobile capitol, we can still relay some nuggets of information that mainstream media have conveniently glossed over or ignored altogether...

First, lets go back to that Chapter 9 bankruptcy filing..  Detroit is seeking protection from creditors in Federal court rather than state court.   A judge last week issued a delay in their request...

Why?  What does it matter?

If the bankruptcy is filed in Michigan, then by law pensioners are fully protected.  If the bankruptcy can be implemented in Federal court, there are no laws on the books protecting them..

As Yahoo News explains it: (blue font)

"Detroit residents pay the highest property and income taxes in the state. Last year its business tax doubled. About 40% of revenues go toward retirement benefits and debt, much of which was issued in the last 10 years to finance pension contributions. 

Payments on $1.6 billion of pension-related certificates of participation consume nearly every dollar of property tax revenue. 

Investors jumped at the high yields on Detroit's debt because they expected the city to borrow and raise taxes to the hilt to avoid default. 

If Motown risked defaulting, creditors bet that the state or federal government would swoop in like Superman and save the city in the nick of time.

But no state bailout was forthcoming..."

Now the goal is to take from retirement pensions.

This means people who've worked their whole lives into the system and fully dependent on those monthly checks could/would see them slashed... maybe 10%...  15%...  who knows..  If Detroit is in truth that bad, it could be a 50% cut...

And the unions like all other creditors would have to take it or leave it..

Do you know how many creditors are owed money by Detroit?

More than 100,000.

The entire population right now is short of 700k so that's like one creditor per seven individuals...

This is case is to the US what Cyprus was to the world...

A trial balloon.

In case you forgot Cyprus, when they were collapsing they closed the banks for over 2 full weeks while ATMs ran out of money, then once it was agreed they would raid the deposits of savers, the small island nation issued capital controls..

This meant you could not wire money abroad nor take it upon your person when leaving the country.. Every individual at the airport searched... Not for guns or explosives or drugs...

The government thug police searched people for cash.

And while everyone was sleeping, other western European nations implemented the same policies for banking emergencies..

It's called a 'bail-in' when well-to-do individuals have their private accounts siphoned to keep the banks afloat..

The notion of your money truly being safe and sound in a bank forever now a lie.. its only now whether you the individual accept the new world or still wish to live in illusions of the old..

So back to Detroit..

If they can successfully free themselves from their pension obligations under the guise of not having enough money, then it sets a precedent..  What's to stop Philadelphia or Chicago, Boston or NYC from doing the same..

It would also decimate the unions once and for all..

If they're powerless to protect pensions, what use would they serve??

And you better believe once Detroit shafts all its creditors, it will go to Washington and ask for and receive a Federal bailout..

Can you imagine a heavily black populated urban city in decay being denied by a black president who pretends outwardly to care about them??

Precedent was already set in the 1970s with New York (Pres. Ford had a PR nightmare change of heart after originally telling them to famously 'Drop Dead'..

So other cities will follow Detroit..

Because really, what is money when its just pieces of printed pictures of Presidents backed by nothing...

We keep saying this and we hope it gets through your heads..  Every single month via QE, $85 billion dollars is created from nothing which becomes US debt the taxpayers are on the hook for...

This money goes to banks and the stock market.

And the break down based on a 30 day month is this:

Take the $85B and divide by 30 days =

$2.83 billion a Day

Take the $2.83B and divide by 24 hours =

$118 million per Hour

Take the $118M and divide by 60 minutes =

$1.96 million every minute

Take $1.96m and divide by 60 seconds =

$32,777 spent on QE every second of the day...

So the lesson of the story is don't think for a moment Detroit won't receive a bailout if/when asked....
Their total debt is $20 billion which is under 1/4th of one month of QE

And don't think for a moment others won't follow..  Maybe even whole states will get in on the act... California has been needing one for a decade but just refuse to be the first to ask...

And while all this is going on, the stock market keeps rising,  people are flocking to the movies to watch cartoons and other crap to escape their lives in 90 min intervals...

And we think there was some local trial somewhere that really has no bearing outside its local jurisdiction except for some race-peddlers in the White House and elsewhere seeking to turn a tea pot into a tempest..

'Don't galvanize and march because of Detroit... or the utter bleakness of this economy..  or even all the black on black crime gripping the nation...'

Nope.. March for a thug who tried to kill a Hispanic man who was following him too closely..  After all, 35yrs ago that could have been our President..

Ask people about that trial and many will provide every minute minuscule detail of the case-- gotta thank CNN for that..

Ask about Detroit and other than identifying their sports teams, you get collective blanks....

We end with a few stats and an overall warning that your local metropolitan area could very well be next...

**  In 1950, there were about 296,000 manufacturing jobs in Detroit.  Today, there are less than 27,000.  There are lots of houses available for sale in Detroit right now for $500 or less; approximately 78,000 abandoned homes in the city.

**  About one-third of Detroit's 140 square miles is either vacant or derelict.

**  Over 60% of Detroit's children live in poverty

**  Less than half of the residents of Detroit over the age of 16 are working at this point.

**  Detroit was once the fourth-largest city in the United States, but over the past 60 years the population of Detroit has fallen by 63 percent.

Wheww.. So much doom and gloom on a sunny-cheery summer day in July..  Crikey!  Let's all go see a Disney Pixar movie as a nice pick-me-up...

So sayeth the Grasshopper...

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