People often have negative views of bankruptcy: only real dummies need to go through it, and it’s an ultimate sign of failure. I’ve combatted this view my entire career. Some of my clients aren’t good at managing their finances, and probably won’t ever be. But most of my bankruptcy clients *are* fine at managing money. What happened is that they encountered an expected shock or crisis that they couldn’t recover from on their own: a job loss (or the recent writer’s strike); Covid stay-at-home orders that stopped the flow of customers to a small business; a divorce that cost a ton in legal fees and resulted in fewer work hours; the illness of a loved one that forced someone to retire before they could fully afford to. For most of my clients, bankruptcy is not a sign of failure, but rather a beneficial tool to help them recover from an economic blow and resume being a productive member of society. It’s mostly good, smart, hard-working people who go through bankruptcy. And, to make this point better than I can, here are stories of celebrities who’ve gone through bankruptcy. You’d be surprised how many famous people, whom we consider wildly successful, have gone through financial turmoil and bankruptcy. Many of them went on to be wildly successful after bankruptcy.
The year is 1920. A young Walt had just founded his first animation studio in Kansas City, with financial backing from a wealthy man in New York City. Business briefly looked great. But, in 1922, the backer lost his own business and could no longer support Disney and his studio. Without the financial assistance, Disney couldn’t pay his staff or his bills. He filed for bankruptcy in 1923. The studio was lost.
But this loss didn’t keep the young animator down for long. The same year, Disney borrowed money from his family to open a new animation studio. It would be this studio that saw the birth of Mickey Mouse about then years later. And thank goodness – can any of us imagine 20th century entertainment with Disney cartoons and amusement parks? As I tell my clients: there is life after bankruptcy, and it’s often my clients’ best life.
Yes, THAT Abraham Lincoln: President of the United States, and writer of the emancipation proclamation. Abraham Lincoln is one of our celebrity bankruptcies!
Let me hop on my soap box, because Lincoln illustrates what I tell my clients: just because you have debts and need to file bankruptcy does not mean you are stupid or bad at business. And it certainly doesn’t mean you’re a failure. Most of us encounter financial trouble in life. Some of us need to file bankruptcy to address and move beyond those difficulties. So what? Do it and move on. Lincoln did. Bankruptcy looked a little different back in Abe’s day but the fundamentals were the same: he owed money, creditors came calling, he went into bankruptcy.
Before he entered politics, Lincoln opened a store with a friend. They stocked the store with goods bought on credit, expecting business to be sufficiently brisk to allow them to repay their creditors quickly. But business wasn’t as good as they expected. Lincoln sold his shares in the store to repay creditors, but that didn’t cover everything they owed. Lincoln sold his horse, too, but the creditors were still knocking at his door. He was finally forced into filing bankruptcy. Of course, Lincoln later became one of our greatest President’s and gained a reputation that out-shined his short history of financial turmoil. Life throws all of us curve balls: the trick is figuring out how to deal with those curve balls, and move past them.
This British musician founded the rock’n’roll powerhouse Fleetwood Mac in 1967. But back in 1984, the rocker filed for bankruptcy. Fleetwood Mac was at its height following the 1977 release of Rumors, the 9th highest-selling album of all time. Just five years later, Fleetwood had far more debt than income. In a 1984 interview with Rolling Stone about what led to the bankruptcy, Fleetwood said his debt came from poor real estate investments coupled with exceedingly high interest rates. At one point, Fleetwood intended to relocate permanently to Australia. He had bought a ranch estate on the island continent, packed up and moved. He spent three weeks at the property before he learned that he simply could not live there. He quickly moved to sell the property, gaining less money from the sale than what was owed on the high-interest mortgage. Fleetwood said that he also assumed he would continue earning as much in the 1980s as he had in the 1970s. But income from the band exponentially dropped as members went on to solo projects.
The moral of Fleetwood’s story is that even high earners often don’t have enough income to cover their debts, and financial circumstances can turn on a dime.
Though both were major musicians, Tom Petty and Mick Fleetwood’s bankruptcies have quite different stories. Petty had a reputation for fighting his record companies to treat him and other artists better. In 1979, after releasing two highly successful records, Petty’s record company sold his contract to another company. The result was bad for Petty, but he could not convince the record company to let him out of the contract. So, Petty financed his next album on his own, and racking up more than a half a million dollars in debt. Petty filed for bankruptcy, hoping it would force the record company to void the contract. It worked! His third album, Damn the Torpedos in 1979 was an enormous success (and my favorite of his albums) and Petty was free of his unfavorable record contract. In all the stories of celebrity bankruptcies, Petty’s seems to be most cunning use of the bankruptcy tool.
My point? There’s no shame in bankruptcy. It’s a financial tool, not a moral judgment. If you qualify for bankruptcy and using it will allow you to move forward constructively, then do so, as so many famous people have. Call me and let’s see if you can’t make good use of bankruptcy, as President Abraham Lincoln and Walt Disney did.
February 6, 2024