There has been much discussion in the urban business community about 50 Cent’s recent fiscal situation and him filing for Chapter 11 bankruptcy.
50 is viewed as one of the most intelligent artists who has transitioned into business.
He is a role model for millions of fans in the music, film and business arenas. So naturally, his recent filing for Chapter 11 bankruptcy poses some questions.
There is a difference between the varying forms of bankruptcy. The Chapters start from 7 and go to 15. Chapter 7 means the liquidation of ALL assets. That is what a person would file when they are broke, and all their assets have to be sold to repay their creditors the best they can.
Chapter 13 is also common. Organizations or individuals use this based off of their current income to develop a court-approved, 3-5 year plan to repay all or part of their debts.
Chapter 11 is different from those chapters because it is about the reorganization of assets. In corporate America, a person may do this if they get hit with multiple liens, but don’t hold much cash.
This has proven to be true with 50 Cent, who owns stakes in companies like Frigo, Effen Vodka, SMS Audio, Thisis50.com, Cheetah Vision, G-Unit Records, Uber, Street King, G-Unit books and others.
In court, 50 Cent testified under oath that most of his flashy lifestyle was an illusion, intentionally crafted for entertainment purposes.
The rapper said that most of his cars were rented and that his jewelry was borrowed.
Still, the rapper admitted that in the past, he had signed an $80 million deal with Reebok, a $78 million deal with Frigo and took in around $23 million from Interscope Records. As for the VitaminWater money, 50 could not mention what he earned due to a nondisclosure agreement.
But the trial has revealed that 50 has actually lent his various businesses almost $30 million, most likely to shield the wealth from being touched over the SMS/Lastonia Leviston sextape lawsuits. His accountants, who get paid $30,000 a month, claimed the companies don’t have the money to give back, although even that was up for question during the proceedings.
So, naturally 50 would want to keep his cash on hand at a minimum and protect his assets. Filing prevents the liquidation of the equity he has invested his cash in outside of SMS, since it could be sold off to appease creditors.
Let’s say you owned a house worth $300,000 but had a child support debt of $15,000 and only had $5,000 in the bank. You would not want to sell your house to pay that amount.
In this case, a person can file for Chapter 11 bankruptcy to protect those assets and negotiate something else, or pay off a portion of a lien to satisfy creditors. There have been many cases in pop culture when this scenario has taken place.
Donald Trump, who has been splashed across headlines in recent weeks for his comments on Mexicans and Senator John McCain, filed in the early 1990’s. Donald Trump’s Taj Mahal casino was in debt to Atlantic City and other creditors to the tune of almost $900 million. As a result, one of Trump’s companies filed for Chapter 11.
Rather than risk years of drawn-out lawsuits in bankruptcy courts, his creditors cut almost $400 million off of his debt. Trump gave up half of his stake in the Taj Mahal and sold off some assets to satisfy his debts. Trump refinanced with Citigroup (with assets protected by filing bankruptcy) and was able to get out of the jam, retain his fortune and continue running multiple businesses as if nothing happened, but it wasn’t easy.
“It’s a good deal, except that I had to go through a cancer operation to get there,” Donald Trump told Fortune in late 1990.
Master P had a similar circumstance in 2003 when he also filed for Chapter 11 bankruptcy to protect himself from various judgments against his No Limit Records. The mogul was able to protect his masters and his business interests, and then reorganize to create what was at the time dubbed “The New No Limit.”
50 Cent’s troubles are very similar to the above examples. The rapper was hit with a lawsuit over his headphone company SMS and another from Rick Ross’ baby mother, Lastonia Leviston. Leviston was not able to prosecute 50 Cent in a criminal court, but she was able to get something out of it in a civil court.
Like most wealthy people on earth, 50 Cent’s net worth is likely derived from his interests in his businesses and his music career.
If 50 had not filed for Chapter 11, those stakes could have been liquidated to pay his creditors. In Chapter 11, he can renegotiate what he has to pay creditors.
The estimated $20 million 50 Cent has to pay can easily be reduced to a lower amount under Chapter 11 guidelines.
Some lawsuits can be thrown out entirely, depending on the circumstances of the case. 50 Cent’s advisors most likely explained this to him, hence the choice to file for Chapter 11.
Now you understand 50 Cent’s bankruptcy.
Shawn Christopher is an entrepreneur and investment director for the Page Murphy Investment Group. With more than six years of experience with investments and personal finance, he is an astute businessman and a frequent columnist for financial matters in pop culture and around the world.