Last week, Curtis James Jackson III – some of you may know him by his stage name 50 Cent – filed for bankruptcy.
For most of us this comes as a shock.
50 transitioned from rapper to a businessman and entrepreneur back in the day and even owns his own record label – G Unit. He used the success from that venture to launch more companies, attract endorsements and went on to invest in stocks and real-estate. He has a clothing line and headphone brand, film production firms, and even started his own boxing promotion company in 2012. The rapper who gave us Get Rich or Die Tryin’ is also very well-known for being the face of Vitaminwater, but it goes so much further than that.
In 2004 50 Cent was approached by Vitaminwater to endorse a drink they were working on called Formula 50. 50 was smart enough to get a minority share in the company in exchange for his spokesperson duties. It was a smart move because just a few years later Coca-Cola bought Glaceau (the company that puts out Vitaminwater) for $4.1 billion.
50 Cent would go on to cash out for a figure between $60 and $100 million. In 2007 when the deal was struck, Curtis Jackson would go on to become the second-wealthiest rapper, only behind Mr. Jay-Z. In 2014 Forbes estimated his net worth at $140 million.
Bankrupt? Broke? What’s the Difference?
Then, on July 13, 2015 the hip-hop star filed for bankruptcy and now everyone is saying he’s broke.
There have been previous instances of famous people applying for bankruptcy protection. Walt Disney. Donald Trump. Francis Ford Coppola.
Mike Tyson is maybe the most well-known case. The former boxer and heavyweight champion earned over $400 million during his career but still ended up filing for bankruptcy and reporting debts of $23 million! He was dead broke.
50 Cent isn’t broke though. As early as May of 2015 Forbes placed Curtis Jackson on its list of “Hip-Hop’s Five Wealthiest Artists 2015”, estimating his net worth at $155 million.
The other rappers on that list: Diddy, Dr. Dre, and Jay Z.
50 Cent specifically filed for Chapter 11 bankruptcy, which is different from the bankruptcy you might be thinking of: Chapter 7 bankruptcy. Chapter 11 is a strategy often used by corporate entities to reorganize their finances and pay off debts. It’s a tactic used to protect your assets when you need to repay creditors.
50 Cent is not broke.
Different Kinds of Bankrupt
Also known as rehabilitation bankruptcy, chapter 11 is different from chapter 7. In a chapter 7 bankruptcy, the people you owe money to collect their debts no matter what. A trustee is appointed by the government and ensures that any assets you have are liquidated (sold) and that the money recovered is used to pay the creditors in the order that they loaned money out.
There’s also chapter 13 bankruptcy, also known as a wage earner’s plan. This allows individuals with regular income to develop a plan to pay off their debts. The individual is allowed to propose a repayment plan that spans from 3-5 years. It’s a way to give people debt relief if things are getting out of hand financially.
But 50 Cent filed for chapter 11, and like chapter 7, it appoints a trustee, but that trustee is the person who files for the protection, and rather than selling all the assets the trustee must supervise the assets and allow the business to continue. The key idea here is that the company is allowed to re-emerge, healthy and able to thrive in the future.
During this phase, there can also be restructuring of any debt. This means that there will be negotiations on the terms of debt. You might get changes in the interest rates on your loans or the value of expected payments.
This is what 50 cent is doing. He is protecting his assets while he pays off his debts. He could have filed for chapter 13, which is very similar but did not meet the debt limits. In his bankruptcy court filing, he reports his assets at $10 million and his debts at $50 million.
Well, the same day he filed for chapter 11 protection the rapper was supposed to be in court, receiving a decision on whether he owes money in a lawsuit filed by rapper Rick Ross’s ex-girlfriend. The jury had previously announced that 50 should pay $5 million for violating the woman’s privacy and posting a sex tape of her online. Typically, filing for bankruptcy protection will halt the progress of any lawsuit and collection effects.
As fellow rapper Method Man said in an article US magazine, “…he’s being sued by a lot of people and he’s protecting his bank. Ain’t nothin’ wrong with that.”
What he is – is insolvent. That’s when an individual, or company, cannot meet its financial obligations as their debts come calling. Generally when that happens and legal action is taken against the insolvent party, then assets are liquidated to pay off the debt.
So it’s more likely that 50 Cent is short on liquidity at the moment. And rather than letting his business interests be taken away from him and/or broken up and sold off to pay off this lawsuit he is instead filing for bankruptcy protection. It’s a shrewd move.
By filing for chapter 11, 50 can get the lawsuit moved from the New York courts to the bankruptcy courts where a smaller amount may be awarded so that all of 50 Cent’s other creditors can get their money.
Additionally, he can delay debt payments for a while, which can serve to frustrate creditors and make them more willing to take less money than they are owed, happy to just have something in their pockets.
The rapper’s demeanor in interviews and on social media indicate that he is extremely relaxed and not worried about what is to come. After all, he is not the first person to use this tactic.