Get Rich And File Bankruptcy: The 50 Cent Business Model

Get Rich And File Bankruptcy: The 50 Cent Business Model

50 Cent may have filed bankruptcy, but that doesn't mean poverty is around the corner.

Published July 13, 2015

50 Cent isn't a businessman. He's a business, man. And sometimes businesses file bankruptcy. Sometimes they do it because they legitimately lost all of their money. Other times it's within their best interests as they pursue something bigger. Either way, your friend Curtis Jackson III has filed Chapter 11 bankruptcy. It's a humbling move at face value, considering this was the same man who cashed out in the hundred millions when Vitamin Water was sold. This is also the same man with a thriving music career, film career, business deals with EFFEN Vodka and SMS Audio, plus a record label G-Unit that has managed to remain in industry conversations despite a continuously evolving cast of characters.

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This Spring, Fif had a reported net worth in excess of $150 million. That's a lot of money; money that is seemingly gone just a few short months later. A few days ago, 50 Cent was ordered by the courts to pay $5 million in a sex tape lawsuit. Coincidence? Maybe. But before we start speculating like we understand the law, we spoke with New York City-based entertainment attorney Cassandra Spangler about this bankrupcty news. She shed some light on what all of this means for 50 Cent and all of his riches.

For those who don't know, what does Chapter 11 bankruptcy mean?

Chapter 11 bankruptcy is different from Chapter 7 bankruptcy, the form of individual bankruptcy most people are familiar with. In Chapter 7, the debtor’s assets are transferred to a trustee, whose job is to sell off assets and pay creditors. Chapter 11 is typically used by businesses, but can be used by individuals (typically with too much income to qualify for Chapter 7 and too much debt to qualify for Chapter 13). 

A key difference between Chapter 7 and Chapter 11 is that in Chapter 11, the debtor generally retains ownership and control over his, her, or its assets as a “debtor-in-possession.”

In Chapter 11, the end goal is to confirm a plan that deals with the debtor’s liabilities. The debtor (or another party, if the debtor’s exclusive right to file a plan has expired) proposes a plan that gets filed with the court along with a disclosure statement providing information about the debtor, the bankruptcy case, and the plan. Once the court approves the disclosure statement, the debtor sends out a notice to “impaired” creditors—people whose claims aren’t being paid in full—along with a ballot enabling them to vote on the plan. If the plan meets a number of criteria set forth in the Bankruptcy Code, and if enough creditors vote to accept it, the court “confirms” the plan, meaning the plan basically redefines the debtor’s liabilities going forward.

In May, 50 Cent's net worth was estimated to be $155 million dollars. What does that mean for his filing? Is all of that gone?" 

No. So long as 50 remains a “debtor-in-possession,” he maintains control of his property. However, filing for bankruptcy protection imposes a number of unique requirements. Most notably, 50 can no longer use his assets “outside the ordinary course of business” without court approval. For instance, he can collect royalties and pay ordinary bills during the bankruptcy case, but he couldn’t sell off real estate or other major assets without first obtaining court approval. 

If 50 has any secured creditors—such as a bank with a mortgage on real estate—he will need court approval to continue using their collateral. In a lot of cases, that’s done by consent, but if a lender doesn’t consent, there may be a fight in court over whether he has permission to use lenders’ collateral. 

50’s bankruptcy petition lists between $10 million and $50 million of assets and liabilities. That’s a pretty wide range, so we won’t know for sure what his personal balance sheet looks like until after his schedules of assets and liabilities get filed. Bear in mind that these values are just the “hard” assets and known liabilities. A lot of a performing artist’s asset value can sometimes be in intangible rights..  

This news comes conveniently as 50 was ordered by the court to pay a woman $5 million for a sex tape. Does that mean he doesn't have to pay?"

Not necessarily. The bankruptcy filing prevents her from taking any action to collect on the jury award without Bankruptcy Court approval, but the treatment of the judgment under the plan is an open question at this early stage of the case. If the plaintiff in that case is able to prove that her claim arose from fraud or willful and malicious injury, she might be able to obtain a ruling that the judgment is nondischargeable – meaning it essentially “rides through” the bankruptcy unaltered, even if the plan provides for partial payment of the judgment. 

What does this mean when it comes to his business properties? 

That depends on the structure of his businesses. If he has separated his business interests into separate entities and maintained the proper legal boundaries between them (that is, if he hasn’t commingled business and personal assets), the assets of his business entities probably aren’t within the grasp of his personal creditors. His ownership interests in those entities, however, are property of his bankruptcy estate, and their value will likely be a major factor in his ability to confirm a Chapter 11 plan. 

So is 50 Cent "broke"?

Not necessarily. Chapter 11 bankruptcy is often invoked to permit businesses and individuals to restructure their debts due to cash flow concerns, even if the value of their assets is greater than the value of their debts. As noted, 50 will be permitted to retain his assets while working to formulate, propose, and confirm a Chapter 11 plan. However, depending on the size and nature of the universe of claims against 50, creditors with significant claims (such as the $5 million judgment creditor in New York) may try to prevent confirmation of a plan in order to seek a higher payout.

That being said, a number of notable individuals have filed for bankruptcy and regained a large amount of wealth, including Willie Nelson and Larry King. Others, such as MC Hammer andMike Tyson, have not found it as easy to recover from bankruptcy. We’ll know a lot more once 50 files his schedules of assets and liabilities.

(Photo: 50 Cent via Instagram)

Written by Kathy Iandoli (@kath3000)

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