Celebrities who once lavished in the limelight have found themselves under fire as creditors and outstanding debts push them into bankruptcy. Whether the celebrity bankruptcy filings were a product of extravagant (and often unnecessary) expenses or a result of a poor investments, bankrupt stars share the most jaw-dropping debt figures among Americans.
Bankruptcy Rooted in Lack of Knowledge
A disregard for money management and a deficiency in financial literacy are often rooted factors that lead bankrupt celebrities astray. According to results from the Go Banking Rates Billionaire or Bankrupt Quiz, there is a significant gap in Americans’ knowledge about how to avoid and/or pay down debt (you can test your own knowledge below).
When asked to identify possible debt reduction approaches, 42 percent of respondents successfully pinpointed “Start paying the balance with the highest APR” as a method of paying down debt, but failed to recognize other viable ways to pay off debt like starting with the lowest balance, working up to the highest debt balance and vice versa.
While paying the balance with the highest APR, is not a wrong answer unto itself, there are many schools of thought regarding this issue, such as that of financial guru, Dave Ramsey, who suggests taking the debt snowball route starting from the lowest to highest balance to rack up small accomplishments along the way.
This insight into how to manage debt can help keep Americans out of the red, while there’s still a chance to do so. Bankruptcy is an undiscriminating reality for even iconic Hollywood celebrities and D-listers alike when debt and assets are not properly maintained.
Here is a list of legendary celebrity bankruptcy stories — learn from their mistakes so you don’t make them, too.
Celebrity Bankruptcy List
Even though these bankrupt stars had their 15 minutes of fame at one time or another, debt eventually caught up to them.
1. Toni Braxton
The six-time Grammy Award winner took on her second celebrity bankruptcy in 2010, after a plague of health issues prevented her from performing in multiple Las Vegas shows. Continued medical bills and a gap in income from missed performances led to a mounting debt of about $50 million.
After attempts at negotiating with creditors, Braxton and her attorney determined that filing Chapter 7 bankruptcy was the only option left. (Photo: burningkarma via Wikimedia Commons)
2. Mike Tyson
Mike Tyson is known worldwide for his eccentric demeanor in and out of the ring. Despite making an estimated $300 million from his boxing career this heavyweight was pummeled with a $27 million debt that steered him into bankruptcy.
A quick glance at Tyson’s purchase receipts — including mansions, diamond-encrusted jewelry and pet Bengal tigers — make it perfectly clear how the boxing champion was unable to knockout his debts. (Photo: Octal via Wikimedia Commons)
3. Donald Trump
It may seem incredible to see Donald Trump, whose net worth is at $2.9 billion, making this celebrity bankruptcy list. However, in Trump’s case, big ambitions can also turn into big debts. In 2009, three Trump casinos located in Atlantic City filed Chapter 11 bankruptcy for the fourth time due to the $1.74 billion debt that Trump Entertainment and other company affiliations shouldered.
Despite these financial failures, Trump is still named #128 in The Forbes 400: The Richest People in America. (Photo: Michele Sandberg via Wikimedia Commons)
4. Allen Iverson
NBA All-Star, Allen Iverson, had his heyday in the late 90s and early-2000s making approximately $154 million in contract earnings and with big-name endorsements like Reebok. Despite his athletic successes and fame as one of the league’s leading scorers, his excessive generosity toward his 50-count entourage and his fondness of showering his mom with pricey jewelry is what sent this basketball player to the bench.
In February 2012, Iverson was underwater for a $860,000 debt to a jeweler causing him to file for bankruptcy. (Photo: Keith Allison via Wikimedia Commons)
5. Betsey Johnson
While Betsey Johnson didn’t file for personal bankruptcy, her name-sake retail company did earlier this month. The company, who is currently under the watchful eye of Steve Madden, expects to close most of its 63 store-front locations noting “severe liquidity problems” in addition to debts owed to vendors, manufacturers and suppliers of about $4.1 million.
Despite this financial hiccup, lead creative director Betsey Johnson remains confident of the company’s future success selling products via department stores like Bloomingdale’s and Nordstroms. (Photo: The Heart Truth via Wikimedia Commons)
6. Nicolas Cage
Nicolas Cage may be an Academy Award actor among Hollywood elites, but the IRS is not so impressed by his star-power. In 2009, Uncle Sam went after Cage for failing to pay $6 million in taxes. Not only did he have to relinquish multiple properties under his name, Cage had to pick-up additional acting roles in order to live “paycheck by paycheck” while paying back his tax debt. (Photo: Gerald Geronimo via Wikimedia Commons)
7. Nadya “Octomom” Suleman
Octomom came to the spotlight recently as another celebrity bankruptcy on the record. In late April, Nadya Suleman filed for Chapter 7 bankruptcy shortly after a month on welfare, thanks to a debt balance of about $1 million, according to court documents.
Upon opening up about her dire financial situation, third-party entities sought to offer her financial assistance. One of the offers she accepted was an adult-rated video appearance. (Photo: US Weekly)
8. Gary Busey
In February 2012, actor Gary Busey, who is famous for his role in blockbuster hits like Lethal Weapon, filed paperwork to claim Chapter 7 bankruptcy. His estimated debt was near $1 million to creditors like Wells Fargo Bank and the IRS, with only about $50,000 in assets to his name. (Photo: mooon2 via Flickr)
It may be difficult to fathom how these bankrupt celebrities were able to spend so much money in so little time. Like any average American is capable of doing, these bankrupt stars loosened the reigns on their spending habits and were either misinformed or wholly uninformed about how their financial actions can lead to long-term financial upheaval.
Take a lesson from your favorite celebrity bankruptcy by improving your financial literacy.
This article is part of the Go Banking Rates Financial Literacy Movement, helping Americans get smarter and grow richer. Take our Billionaire or Bankrupt quiz to test how knowledgeable you are!