Curtis Jackson III popularly known as 50 Cent, is the latest celebrity to file for bankruptcy protection. The Twitterverse is popping with puns and observations on his rapper handle and the state of his finances. That’s all to be expected. But rather than muse on whether 50 Cent is really worth less than 50 cents, let’s look at what this bankruptcy filing means for him, his business and media machine, his creditors and his fans.
Chapter 11 is a type of bankruptcy protection that allows a business or an individual to reorganize its debt while continuing to do business. 50 Cent will be allowed to continue entertaining, operating his businesses or otherwise making money while he negotiates with creditors to restructure debt.
50 Cent
The Chapter 11 filing is apparently a reaction to a jury verdict for $5 million rendered just days ago against the rapper. The lawsuit, filed by Lastonia Leviston, alleged that 50 Cent invaded her privacy when he uploaded an explicit video of Ms. Leviston to the Internet that the rapper had obtained from Ms. Leviston’s boyfriend.
Although the jury issued the damages verdict, the case was not over. The jury was scheduled to consider a possible punitive damage award to the plaintiff. In fact, 50 Cent was scheduled to appear in court on Monday, July 13, to testify about his finances.
There are several reasons why the rapper would choose a Chapter 11 filing at this point. First of all, he’s taking advantage of the automatic stay, an injunction, which goes into effect when a bankruptcy case is filed, that prohibits creditors from taking certain actions to collect debts. The debt then comes under the jurisdiction of a bankruptcy court, and any creditor action must comport with the bankruptcy code, a set of federal laws that govern all types of bankruptcy in the United States, and be taken only under the supervision of a bankruptcy judge.
In this case, the automatic stay effectively stops the Leviston lawsuit in its tracks, before 50 Cent had to take the stand to testify about his finances (although he will certainly have to reveal his finances through his bankruptcy schedules.
Filing now also prevents the state court from entering a final judgment on the lawsuit. In addition to the monetary award, a judgment would also probably have included a pronouncement on the circumstances and character of the debt, which could affect whether the debt could be discharged, or eliminated, by a bankruptcy filing. Debts for willful and malicious injury are not discharged or eliminated in a bankruptcy case. Debts that result from negligence or even recklessness can be discharged. Without a judgment, it is not clear in a legal sense whether the debt arose from willful injury or something less.
In effect, this bankruptcy filing may force Ms. Leviston to start from scratch and re-try her invasion of privacy case in the bankruptcy court. Or, the bankruptcy court could grant permission that would allow the plaintiff to continue the state court lawsuit to judgment.
What Will Happen in 50 Cent’s Chapter 11 Case?
In a Chapter 11 filing, just like all other types of bankruptcy, the debtor cannot pick and choose which debts or which assets are included in the case. In the coming weeks, 50 Cent will be required to file a list of those debts and assets, which will become a public record.
50 Cent will also be required to attend a Meeting of Creditors, at which the creditors will be allowed to examine him and ask questions regarding his finances, his business prospects and his plans for handling his debt.
Unlike a Chapter 7 case, he will not necessarily be required to give up any of his assets to pay his creditors. Instead, he will propose a reorganization plan, which will outline how he intends to pay his creditors, including any deviations from previous non-bankruptcy contracts.
Much of the reorganization plan will be a result of extensive negotiations between the major players in this saga. But, eventually, the creditors will have ultimate say. They are allowed to vote on whether they accept his reorganization plan or not. In fact, under Chapter 11, creditors can submit their own plans for consideration if they are dissatisfied with what the debtor proposes.
In the meantime, 50 Cent, will continue to operate more or less normally. He can sing, act, run his business interests, pay his employees and probably even invest in new ventures and enter into contracts for future projects or performances. As to Ms. Leviston and the lawsuit that brought on this Chapter 11 filing, only time will tell how it comes out in the end. Stay tuned.
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