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How Celebrities Go Bankrupt

August 19th, 2010 Wantland Posted in Bankruptcy, Celebrity Debt, Debit 7 Comments »

Karen Hartline –

What do Burt Reynolds and Thomas Jefferson have in common? How about Kim Basinger and Gary Coleman? What about MC Hammer and… well I think that name tells you where this is going. They are all famous filers of bankruptcy and members of a long line of celebrity debtors. We look forward to their tales of woe on the last five minutes of the eleven o’clock news. We marvel at the details of each financial fiasco. One can’t help but wonder how could such fortune turn into such debt?

If you ask Kim Basinger, she might tell you it was her weakness for the town of Braselton, Georgia. Basinger bought the town for $20 million around the time she dropped out of the movie Boxing Helena. While this might have been a wise career decision, the financial fallout was severe. After being sued for breach of contract, Basinger filed for bankruptcy and had to sell the town.

Mike Tyson might point his finger at his pet tigers. They were among the boxer’s many outrageous purchases and accounted for over $8,000 of his debt. Of course, these innocent, caged beasts represented only a fraction of Tyson’s lifestyle which demands $400,000 a month to maintain.

For Debbie Reynolds, bankruptcy stemmed from her hotel. The opening of the Las Vegas property, named none other than the Debbie Reynolds Hotel and Casino, made the perfect home for her extraordinary collection of movie memorabilia. However, her finances fell into bankruptcy when the casino flopped and Cleopatra’s Headdress retired to storage.

Famous spending sprees are also to blame. Michael Jackson has been reported at various times to be in financial crisis. He’s also famous for outrageous spending. He purchased ten artificial intelligence Sony AIBO dog robots at $5,000 each, and it takes over $200,000 a month just to maintain and run his home. The King of Pop dazzled the American populace when he shopped away $6 million within a matter of hours on the TV documentary “Living with Michael Jackson.”

Robots, tigers and towns, oh my! While there are differences in the details, there does seem to be a common thread with these celebrity bankruptcies.

In a recent New York Times article, former comedian and director of the film PhatBeach explained the typical Hollywood financial story. “When you make money in this town it’s very fast, and it feels like it’s never going to end,” said Mr. Ellin. “I’ve done it myself. I’ve been the idiot who was spending money and then thought, ‘Wow, I haven’t had a job in two years.'”

Parents try to raise fiscally responsible kids by repeating clichés like “money doesn’t grow on trees.” Apparently, it doesn’t even grow on the trees behind the houses on MTV’s Cribs. Show business is a winner-takes-all career. When celebrity hits and the paychecks roll in, they don’t come with sound financial advice attached. Many of those who do strike it rich are suddenly so deep in wealth they don’t consider reaching the horizon.

Evan Bell is a business manager who represents a number of Hollywood newcomers. He recently told the New York Times, “When the agent says, ‘No one read that bad review’ and that ‘it doesn’t matter,'” his job is to be the voice of reason. “I say, ‘You got a bad review — don’t buy that new car.'”

Athletes aren’t immune to delusions of eternal wealth either. Derek Sanderson, a former football star, is one of the most famous for this misconception. In 1972, he signed a contract for a record breaking $2.65 million and lost it all to alcoholism and a string of bad investments. Back on his financial feet, he now advises athletes who find themselves in this daunting position of wealth.

“Almost every player is not conscious of the fact that it will end,” Sanderson says. Of his work as a business manager at Boston’s State Street Research he says, “We educate the players as to what risk is. Once you show the player how quickly the money can go, they get a good sense of calming down.”

Being a financial tamer sounds easier than it actually is. One Hollywood financial advisor, Scott Feinstein, told the New York Times about a call he received from a client in his mid-twenties who wanted to buy a $35,000 watch. “I said ‘What time does it say?’ and he said, ‘Ten minutes after 3.'” Feinstein recalled. “I told him, ‘Mine says 10 after 3 too, and it cost me 60 bucks. Put the watch down.'”

Of course, one $35,000 watch does not pave the road to bankruptcy. The problem occurs when exorbitant spending goes from isolated incidents to a must-have lifestyle. Apparently, when MC Hammer sang “Can’t Touch This,” he was not singing about his money. The famed rapper’s forty-member entourage outspent his $33 million income on lavish day-to-day living.

Though some of these anecdotes may ring familiar, you probably don’t think of any of these celebrities as actually suffering financially or sleeping out on the streets. Burt Reynolds, despite his $8 million in debt, kept a house that was valued at over $2 million. Kim Basinger certainly never looked like she was having any financial difficulty.

Filing Chapter 7 bankruptcy was a way for these debtors to wipe the slate clean and basically avoid paying their bills. The number of filers increased dramatically over the course of the nineties. For this reason, bankruptcy laws were challenged in 2001, and a new bill was put into place. Such a bill had faced contention in legislation due to the demographics of most bankruptcy filers. “This is a class issue, these are poor people we are talking about,” said Senator Paul Wellstone, Democrat of Minnesota in a call for compassionate conservatism.

But other Democrats charged that passing the bill was a form of payback to corporate America. They thwarted cases, such as those of Kim Basinger and Toni Braxton, which seemingly took unfair advantage of the law as it stood.

CNN Congressional Correspondent Kate Snow reported on changes to the federal bankruptcy code. She claimed the most significant aspect of the new bankruptcy legislation would be that filers would be subject to a “means test.”

“Anyone making over a certain amount of income would be forced to file under Chapter 13 rather than under Chapter 7 bankruptcy.” said Snow. “This means that they would have to pay off some or all of their debt – they would not be able to wipe the slate clean.”

So, is it working? Well, perhaps the fact that Tyson filed for chapter 11 due to his earning potential is evidence of justice for the average debtor. The fighter is planning a comeback, however. Not many others could so confidently boast of such a possibility with $40 million dollars in bills looming overhead. Perhaps recent changes to the law will make it more of an uphill battle for Tyson than it was for famed financial fumblers of the past.

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Debt CONsolidation part II

December 19th, 2009 Wantland Posted in Debit No Comments »

Debt settlement firms pretend they can make creditors settle for “pennies on the dollar”. They claim their service is better than bankruptcy. I usually see them make things worse. These companies are not regulated by anyone. They can, and often do, collect thousands of dollars before providing any services. Sometimes, they take the money and run. A lot of times they can accomplish anything only to say to you “bummer”. Because they make more the longer it takes to settle your debt, they are in no hurry to work things out pronto.

First of all, debt settlement can be done by you just as easy as the settlement firms. If the creditor is not willing to work with you, they’re not about to work with some settlement firm. By getting involved with a settlement firm, the only message you’re sending is that you have extra money to pass out. This makes creditors even hungrier. Remember, debt settlement isn’t the law. Until you involve Courts, you can’t force a creditor to modify their legal rights.

To add insult injury, at the end of the settlement, the money you save is taxable income. So, about the time you’ve dug out all your savings to settle a bill, you get another bill from the government.

Before getting involved with debt CONsolidation, call me. Get real advice from a real lawyer. You owe yourself that much.

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Stop the Calls Today

December 19th, 2009 Wantland Posted in Bankruptcy, Debit No Comments »

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Debt CONsolidation

October 11th, 2009 Wantland Posted in Bankruptcy, Debit 2 Comments »

A lot of clients come to me after being in debt consolidation programs for a while. Typically, they have spent several thousand dollars on “credit counseling” or “debt consolidation”. After months of paying into a program they figure out that their debt has not actually gotten any lower, their credit, once bad, is now destroyed, and they are no closer to a fresh start than before.

Debt consolidation works for some folks. Some people are actually able to take a pile of high interest debt and turn it into one low monthly payment. Usually, these folks have OK credit and are able to get a better loan or have some collateral to offer a lender. Most that I see get put into a “debt settlement program”.

Most “debt settlement programs” or “debt management programs” work something like this…

A person calls an advertisement on late TV. Soon they are paying a few hundred dollars monthly to a debt settlement company. The company sends letters to the creditors asking them to begin negotiations. The credit card companies have a few choices…

They can chose to work with the settlement companies- this means that after the debtor pays into the settlement program for a few months, the debt settlement company will pay off the now charged-off balance to the credit card company. This allows the debtor to get out of the debt for less than the whole amount owed. Sounds pretty good, right?

Not so fast- first, your credit is pretty well shot at this point. Next, your have tax issues at the end of the year. Debt resolved through forgiveness is taxable. That means if you settled $1000 in credit card debt for $500, you get to pay taxes on $500. But, it could be worse.

Sometimes credit card companies decide not to work with debt consolidation companies. This is when the nightmare really begins…

First, your already bad interest rate gets worse. Credit card companies will move you to what is called the default interest rate. This means that the amount you owe each month in interest mushrooms. Next, the balance will be accelerated. This means EVERYTHING you owe is due now. You think this is not a problem because the debt settlement company will fix it, right? WRONG! UNLESS THE CREDIT CARD COMPANY AGREES TO WORK WITH YOU, THE DEBT SETTLMENT COMPANY HAS NO LEGAL RIGHT TO FORCE THE CREDIT CARD COMPNAY TO DO ANYTHING.

The result when this happens is ruined credit, potentially garnished wages, a higher interest rate, and no real solution in sight. Oh, and on top of that, the debt settlement company keeps your money.

What a bargain.

Does bankruptcy have drawbacks- certainly. No doubt bankruptcy will hurt good credit and be potentially more embarrassing than debt settlement. However, bankruptcy is the law. Credit card companies can’t ignore bankruptcy. Also, one way or another, bankruptcy will resolve debts.

Bankruptcy- it’s not a con game, it’s the law.

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