Bankruptcy protection for people with serious financial problems is a concept as old as English common law (but was applied only to merchants – hence the debtor’s colony for offending individuals that England created in Colonial Georgia), and is even provided for by the Constitution. Article 1, Section 8, Clause 4 of the Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.” Filing bankruptcy immediately acts to stop creditors from pursuing most claims and provides a framework to allow an honest debtor to get back on his feet. But in order to obtain these powerful protections, the law requires the debtor to be completely above board and accurately list all obligations and all liabilities.
Rapper DMX (his family knows him as Earl Simmons) recently found out the hard way that in exchange for the benefits and protections the bankruptcy law provides, you have to play by the rules. DMX filed for bankruptcy protection in July 2013, listing debts of about $1.8 million arising from contract disputes, goods and services and past due child support for his 10 children. On November 12, 2013, the bankruptcy court dismissed his case – and barred him from filing another bankruptcy case for 18 months – effectively leaving DMX twisting in the wind to be pecked clean by his creditors.
What were DMX’s failings? In dismissing the case, the bankruptcy judge found that DMX (1) failed to provide requested financial information, (2) filed schedules that included multiple instances of inconsistent information, (3) failed to show up for the meeting of his creditors, (4) failed to provide proof of insurance of his assets and (5) was continuing the pattern of unreasonable delays that had resulted in the dismissal of a prior bankruptcy case in 2009.
Ironically, the lack of bankruptcy protection may also work against DMX’s creditors, as they now swarm the financial carcass trying to grab as much of the meat as possible before other creditors get there. When I first began to practice law, the firm I worked for had obtained a sizable judgment against superstar James Brown. The senior partner showed up at a James Brown concert with a certified copy of the judgment and a sheriff’s deputy, demanding that the venue pay the lawyer Mr. Brown’s performance fee for the evening. Mr. Brown resolved the dispute very quickly. For DMX, I can foresee a line of creditors waiting at the promoter’s door with their hands out. But there is only so much money to go around.
So, what can DMX do now? No doubt his representatives will spend the coming months trying to negotiate deals with his creditors to allow additional time for payment. DMX will soon be back on tour with European dates beginning mid-December 2013, and his creditors stand the best shot at repayment by urging him to perform. Often. If he can generate a good income and buy time until he can refile a bankruptcy, perhaps he will have learned his lesson and makes full disclosure. He has, after all, proposed to reorganize his debts and repay his creditors in both of his failed bankruptcy cases.
The list of celebrities who have filed bankruptcy is long and illustrious, including Toni Braxton, Samuel Langhorn Clemens, Walt Disney, Ulysses S. Grant, Mick Fleetwood, LaToya Jackson, Chaka Kahn, Cindy Lauper, Meat Loaf, Willie Nelson, Tom Petty, Bert Reynolds, Sinbad, Donald Trump and Tammy Wynette. While entertainers may lead more complicated financial lives than most of us, they are not exempt from the bankruptcy law’s rigorous compliance requirements. To get the benefit of the bankruptcy laws allowing for the extinguishment of most debt, honesty is the best policy.