Nearly one million bankruptcy cases are filed each year, and the majority of them are Chapter 7. When someone mentions bankruptcy, the picture we paint in our minds depicts a broken person who is struggling for bread and butter. The situation is legit for the average filer, as he/she is burdened by debt and hoping not to become homeless. Chapter 7 allows liquidation of assets and their fair distribution among creditors; most unsecured debt is erased, which is usually the only plus side to the ordeal.
Surprisingly, many celebrities who are multimillionaires and the true depiction of an extravagant lifestyle also file for bankruptcy. They are nowhere near ‘broke’ while filing and somehow become richer afterwards. How come they don’t hit rock bottom and spend the last of their savings to survive? It may strike as unfair, but there is no comparison between a bankruptcy filed by a pop music sensation, and that filed by a middle-aged schoolteacher, who is also a single mother of two.
Donald Trump has filed for bankruptcy six times (prior to presidency); describing him as a poor billionaire sounds ironic, but it is what it is. While the average bankruptcy filer may be looking at cheaper detergent at the grocery store, the rich and famous are still buying their clothes at designer boutiques. The disparity can be explained by the type of bankruptcy each party applies for. While over 60% of candidates opt for Chapter 7, the remaining can only select Chapter 11 or Chapter 13 Bankruptcy.
Chapter 13 is next to Chapter 7 in popularity, whereas filers of Chapter 11 make up for a small fraction of the total number of bankruptcy cases. Chapter 11 is reserved for high profile celebrities who are accustomed to the finer things in life. These people are not literally bankrupt; they are not fretting over unpaid utility bills, but in fact trying to recover from some bad business decisions. No matter what the type of bankruptcy, stress, and anxiety are common symptoms of people going through the process. Nonetheless, the rich and famous do not have to worry about basic things like food and rent.
Both Chapter 11 and Chapter 13 allow better asset management by organizing a plan to pay off debt in a convenient manner. Chapter 13 is subject to debt limits and a stable income is required to qualify for it. On the other hand, Chapter 11 has no debt limits or specific income requirements; this makes it the preferred bankruptcy for celebrities with a high net worth. Public figures who have managed to acquire large sums of money in the past are fit to apply for Chapter 11. Their fame and talent is used as collateral for the financial break. They are capable of bouncing back, which is why legal authorities and creditors are willing to take the risk.
While the celebrities themselves do not suffer a great deal from the bankruptcy, other stakeholders who invest in them or their businesses have to take the fall. Both Chapter 13 and Chapter 11 allow partial discharge of debts, but liquidation of assets can be prevented. Chapter 13 bankruptcy lasts for 3 to 5 years, while Chapter 11 can be wrapped up within 2 years or sooner.