Sometimes, debtors use bankruptcy laws strategically, a phenomenon known as “strategic bankruptcy.”11 In summary, a strategic bankruptcy occurs when an otherwise solvent company makes use of the bankruptcy laws for some specific business purpose. Consider, for example, the artist known as 50 Cent, whose legal name is Curtis James Jackson III and who filed for bankruptcy protection a few days after a jury ordered him to pay a private plaintiff $5 million in a “revenge porn”lawsuit.

In fact, 50 Cent is one of the most successful recording artists in the music industry and a successful entrepreneur in his own right. He reportedly made as much as $100 million from his investment in Vitaminwater after it was purchased by Coca-Cola, has produced many successful music records, and has appeared in nearly two dozen films.12 By all accounts, 50 Cent is not “broke,” so why did he file for bankruptcy? One clue is the type of bankruptcy the rapper 50 Cent filed for. Specifically, he filed for a bankruptcy, a type of bankruptcy filing usually reserved for corporations that need to be restructured while they remain open for business. Firms and individuals looking to reorganize their debts might use to buy more time to pay their debts and give them a chance to come up with a payment plan, an option such firms.

In other words, 50 Cent’s Chapter 11 filing might be a strategic effort to stay in control of his assets. At the same time, 50 Cent’s bankruptcy filing may make it more difficult for the plaintiff in the revenge porn lawsuit to collect the $5 million judgment against 50 Cent because the plaintiff in that lawsuit will now be one of many creditors trying to get their share of his fortune. According to Hunter Shkolnik, the plaintiff’s lawyer in the revenge porn lawsuit, “We think this is a failed attempt to avoid paying this woman who has been hurt so badly by his actions.”

But filing for bankruptcy also has a potential downside for 50 Cent. By filing for bankruptcy, 50 Cent will have to incur substantial additional legal fees, and he could potentially have his assets and personal finances scrutinized in court.13 A bankruptcy judge will have the authority to review his spending his earnings, and his estate.

Ultimately, whether these additional legal costs and public scrutiny are worth the strategic benefits is a close call. What do you think?

CRITICAL THINKING QUESTIONS

1. Is the decision to engage in a “strategic bankruptcy” an ethical one? Is it ever unethical to exercise a legal right?

2. Is there a principled way of distinguishing between strategic and nonstrategic bankruptcies?