Seven famous people who survived bankruptcy

As the economy continues to look grim, the word “bankruptcy” is on the tips of more and more tongues. While being unable to pay one’s creditors is never a good situation for a company or an individual, it may not be the financial kiss of death that you might think. (Just ask Donald Trump, whose casinos have gone bankrupt twice.) A number of successful people have found themselves overextended and ended up filing for bankruptcy, only to successfully stick it out and find firmer financial footing again. Here are a few famous names who knew what it’s like to be strapped for cash:

 1. Abraham Lincoln 
His face may now appear on the penny, but at one time, Lincoln didn’t have a single cent to spare. Lincoln tried many occupations as a young man, including buying a general store in New Salem, Illinois, in 1832.
While he may have been terrific at splitting rails, winning debates, and wearing stovepipe hats, Honest Abe wasn’t much of a shopkeeper. Lincoln and his partner started buying out other stores’ inventories on credit, but their own sales were dismal.
As the store’s debts mounted, Lincoln sold his share, but when his partner died, the future President became liable for $1,000 in back payments. Lincoln didn’t have modern bankruptcy laws to protect him, so when his creditors took him to court, he lost his two remaining assets: a horse and some surveying gear. That wasn’t enough to foot his bill, though, and Lincoln continued paying off his debts until well into the 1840s.
Lincoln’s not alone in the annals of bankrupt commanders-in-chief, though. Ulysses S. Grant went bankrupt after leaving office when a partner in an investment-banking venture swindled him.

Thomas Jefferson filed for bankruptcy several times, including after leaving office, possibly because he threw around a lot of cash on food and wine.
William McKinley went bankrupt while serving as Ohio’s governor in 1893; he was $130,000 in the red before eventually straightening out with the help of friends. He won the White House just three years later.

2. Henry Ford
Speculation abounds about the future of the Big Three motor companies, leading some observers to wonder what Henry Ford would think of this financial peril. Ford actually couldn’t be too judgmental, though, because he was no stranger to debt himself.

In 1899 the young mechanic and engineer started the Detroit Automobile Company with the backing of three prominent politicians. Ford hadn’t quite mastered the innovation and production techniques that would eventually make him rich, though. Over the next two years, Ford proved to be too much of a perfectionist, and his plant only produced 20 cars as he painstakingly tinkered with designs.
The enterprise went bankrupt in 1901 and reorganized into the Henry Ford Company later that year. Ford eventually left that group and finally got things right in 1903, when he founded the Ford Motor Company. Things didn’t go so badly for the Henry Ford Company after he left, either; it changed its name into one you might find a bit more recognizable: the Cadillac Automobile Company. Ford wasn’t the only auto magnate who knew how bankruptcy felt, though. General Motors founder William Crapo Durant took a massive hit during the Great Depression that saw his fortune fall from $120 million to bankruptcy. He spent his last few years running a bowling alley in Flint, Michigan.

 3. Walt Disney
His name may be a stalwart brand today, but early in his career, Disney was just a struggling filmmaker with too many bills. In 1922 he started his first film company with a partner in Kansas City, Kansas.
The two men bought a used camera and made short advertising films and cartoons under the studio name Laugh-O-Gram. Disney even signed a deal with a New York company to distribute the films he was producing. That arrangement didn’t work out so well, though, as the distributor cheated Disney’s studio.
Without the distributor’s cash, Disney couldn’t cover his overhead, and his studio went bankrupt in 1923. He then left Kansas City for Hollywood, and after a series of increasingly successful creations, Disney debuted a new character named Mickey Mouse in 1928.

4. Milton Hershey
 Milton Hershey always knew he could make candy, but running a successful business seemed just out of his reach. Although he never had a formal education, Hershey spent four years apprenticing in a candy shop before striking out on his own in Philadelphia in 1876.
Six years later, his shop went under, as did a subsequent attempt to peddle sweets in New York City. Hershey then returned home to Lancaster, Pennsylvania, where he pioneered the use of fresh milk in caramel productions and founded the successful Lancaster Caramel Company.
In 1900 he sold the caramel company for $1 million so he could focus on perfecting a milk chocolate formula. Once he finally nailed the recipe down, he was too rich (and too flush with delicious chocolate) for anyone to remember the flops of his early candy ventures.

 5. Burt Reynolds
Burt Reynolds was one of Hollywood’s biggest stars of the 1970s. Unfortunately, though, he spent money like his career would never hit a downswing. He owned mansions on both coasts, a helicopter, and a lavish Florida ranch. Gradually, his financial situation got grimmer as he made boneheaded career choices and weathered a pricey divorce from Loni Anderson. By 1996, the Bandit owed $10 million to his creditors, and the royalties from “Cop and a Half” just weren’t flowing in quickly enough. Reynolds declared Chapter 11 bankruptcy, from which he emerged in 1998.
Not only did he not have to sell his trademark mustache at auction to pay his bills, Reynolds even got to keep his Florida estate, Valhalla. This homestead exemption raised the ire of some observers who didn’t think hanging on to a $2.5 million mansion while writing off $8 million in debt was quite in the spirit of bankruptcy laws’ provisions about keeping one’s home.
In fact, when the Senate passed measures tightening these loopholes in 2001, Reynolds’ keeping his ranch was one of the examples they used to decry bankruptcy proceedings as going too easy on the wealthy. “There is no greater bankruptcy abuse than this,” said Wisconsin Senator Herb Kohl.

 6. H.J. Heinz
When Heinz was just 25 years old, he and two partners began a company that made horseradish. As the legend goes, the spicy root was the first of Heinz’s famed 57 varieties, but it wasn’t as lucrative as he’d hoped. A business panic in 1875 bankrupted his enterprise, but Heinz’s passion for condiments remained strong.
The very next year, Heinz got together with his brother and a cousin to start a new company in Pittsburgh, Pennsylvania. The reorganized group started making ketchup, and the business took off. Recently the H.J. Heinz Company had over $10 billion in revenue.

7. P.T. Barnum
Famous showman P.T. Barnum was always quick with a quip, but he wasn’t so snappy about paying back his loans. Although he was successful showing off oddities in New York and around the globe, Barnum had a habit of borrowing cash from anyone who would open their wallet for him. Mental Floss: 12 oddball museums preserving our history
He’d use these funds to buy real estate, particularly around Bridgeport, Connecticut, where he was trying to foster industrial development. Unfortunately for Barnum, he went too far with borrowed cash, and in 1855, things bottomed out. Barnum was bankrupt and owed his creditors nearly half a million dollars.
Barnum didn’t give up, though, and he slowly worked himself out of debt over the next five years. The showman gave lectures around England about showmanship and making money, and he regained control of his main attraction, The American Museum in New York City, in 1860.
In 1871, just a few months shy of his 61st birthday, Barnum entered the circus business with Barnum’s Grand Traveling Museum, Menagerie, Caravan, and Circus, which raked in over $400,000 in its first year.

A Reasonable Hypothesis of Innocence

The law is well settled in Florida that in a criminal trial when the evidence presented by the State is wholly circumstantial, the state must present evidence which contradicts every reasonable hypothesis of innocence in order to sustain a conviction. If the state does not do this a motion for judgment of acquittal must be granted. All too often the state utilizes and relies upon impermissibly stacked inferences against an accused to suggest guilt. For instance, in a trial for driving under the influence of alcohol, because each and every police officer in the state has taken a special course, the evidence presented will be that the defendant's eyes were bloodshot or glassy, the speech was slurred, the gait was staggered and there was a strong odor of alcohol emanating from the defendant or the defendant's breath. These rotely memorized matters are commonly written into every police report throughout the state, often without regard to the actual truth. Invariably, the defendant failed to maintain a single lane while driving or there can be any one of a host of other reasons for a traffic stop. Once the stop is made, the officer subjectively determines the factors which infer guilt from a litany of seemingly objective observations. It is not a scientific process, but it will appear to be. It is not a seeking of the truth, but the necessary foundation to a finding of guilt. But our example is just one and the context applies to all criminal prosecutions which employ only circumstantial evidence. The distinction between direct evidence and that which is circumstantial is at the heart of the problem. Only testimony from someone who actually witnessed our defendant consume alcohol and then get behind the wheel and drive would suffice in this example. Although the observations of our officer appear to be direct, they are not. Slurred speech, bloodshot eyes, a staggered gait, and an odor of alcohol are direct evidence of what the officer observed, but these are nothing more than the proof of a chain of circumstances pointing to the commission of the offense, the classic explanation of circumstantial evidence.

"Evidence which furnishes nothing stronger than a suspicion, even though it would tend to justify the suspicion that the defendant committed the crime, it is not sufficient to sustain conviction. It is the actual exclusion of the hypothesis of innocence which clothes circumstantial evidence with the force of proof sufficient to convict. Circumstantial evidence which leaves uncertain several hypotheses, any one of which may be sound and some of which maybe entirely consistent with innocence, is not adequate to sustain a verdict of guilt. Even though the circumstantial evidence is sufficient to suggest a probability of guilt, it is not thereby adequate to support a conviction if it is likewise consistent with a reasonable hypothesis of innocence." Davis v. State, 90 So.2d 629, 631-32 (Fla. 1956).

Our analysis must turn to this defendant, although not required to prove or disprove any fact and the constitutional right to remain silent is absolute, the explanation is that at 2:00 a.m., after performing in a bar for a total of six hours and having been up since 6:00 a.m. the preceding morning, the defendant was exhausted when stopped by the officer. Surely, this negates each and every circumstance which lead the officer to suspect a crime. Fortunately, this defendant refuses all sobriety tests. So, there is no evidence except the officers testimony. 

Tell me what you think. Should the court grant a motion for judgment of acquittal, or should the defendant be convicted?

Grand Theft, Defrauding a Financial Institution, and Double Jeopardy

The Supreme Court of Florida and each of the District Courts of Appeal have ruled that Grand Theft and Organized Fraud convictions based upon the same conduct violated the Double Jeopardy principles. The applicable rule of law is that offenses are separate if each offense contains an element that the other does not. This is known as the Blockberger analysis and has been codified in Florida Statutes, Section 775.021(4). When each offense does not contain an element that the other does not, they are considered to be the same offense for double jeopardy purposes. The Double Jeopardy clause protects those charged with crime with three separate protections. It guards against being tried twice for the same offense after acquittal. It guards against a second prosecution for the same offense after conviction. And it guards against multiple punishments for the same offense. Analysis is very technical and always complicated.

The question in a recent case is whether Grand Theft and Defrauding a Financial Institution based upon the same conduct, when the Defendants have already been tried and acquitted of Grand Theft, RICO and Conspiracy to Committ RICO, violate Double Jeopardy. The pending prosecution contains one count of aggravated white collar crime, based upon 13 separate instances of defrauding a financial institution, and three counts of defrauding. In 10 of the predicate offenses to count one, the Defendants were previously acquitted in prosecutions for Grand Theft, based upon the same conduct. Grand Theft, in essence, is a deprivation. Defrauding a Financial Institution is deprivation by fraud on a bank. The offenses are the same for double jeopardy purposes. The elements for DFI contain elements that Grand Theft does not. But Grand Theft does not contain an element that DFI does not. Thus, the Defendants cannot be tried again for the same offense.

Bankruptcy and Foreclosure

Bankruptcy will stop a foreclosure sale. It will stop all state court actions unless and until the automatic stay is lifted by the Bankruptcy Judge. It may force the mortgage company to take a different stand, one more amenable to modification or negotiation.  In the foreclosure crisis that the nation is facing, it has probably become more common to file for bankruptcy relief only to stop a foreclosure sale. However, it is an abuse of the Bankruptcy Code to file a bankruptcy for the sole purpose of halting a foreclosure sale. When a bankruptcy is filed, one of the first things which occurs is that the clerk sets a meeting of creditors which will take place within a month or six weeks. If the debtor does not show up for the meeting, another meeting will be set, and if the debtor fails to show for the second meeting, the case can be dismissed. A debtor who files a bankruptcy for the sole purpose of stopping a foreclosure sale will not usually appear for the mandatory meeting, and will not usually file all the documents required. The case will eventually be dismissed, and the mortgage company will eventually get the automatic stay lifted so that the foreclosure can proceed. It is important that each debtor acts in “good faith” when filing for bankruptcy protection, and filing solely to stop a foreclosure is not acting in good faith. The mortgage companies have too many properties which have already been foreclosed upon, and are more likely to allow modification. There are millions of foreclosed and vacant homes across the country and with over one million foreclosures being filed each year, there will be more.  The current economic circumstances are dismal and for many there is no real choice but to file for protection. If and when you file, be sure not to fall into the category of “bad faith” filings, make sure to follow through with filing all the documents required and attending the meeting of creditors. A fresh start is available.

Bankruptcy and Foreclosure Statistics:

In 2010 there were a total of 1,139,601 Chapter 7 Bankruptcies and 438,913 Chapter 13 Bankruptcies filed in the U.S.  The total consumer Chapter 7 filings were 1,100,116., while the total consumer Chapter 13 filings were 434,739. In the Middle District of Florida there were a total of 47,730 Chapter 7, and 15, 967 Chapter 13 filings, by individuals. It appears that Florida’s middle district had the third highest non-business Chapter 7 filings in the nation, being topped by the Central District of California and the Northern District of Illinois, which had 105,094 and 49,017, respectively. Business Chapter 7 filings were 39,485 in 2010, along with 4,174 Chapter 13 filings nationwide. There were over 1 million home foreclosures in the nation during 2010, alarmingly close to the number of bankruptcies filed. This figure could have been much higher if it had not been for the home foreclosure robosigning scandal in the 4^th quarter. Foreclosures are expected to be over 1.2 million, and bankruptcies are expected to reach 1.6 million in 2011. 

Chapter 20 Bankruptcy?

Chapter 7 Bankruptcy is primarily for consumers. Chapter 13 Bankruptcy is primarily for people who can pay a percentage of the debts they owe. But what is a Chapter 20?  There is no Chapter 20 in the Bankruptcy Code. It is a theory, an intellectual pondering, on a scenario wherein someone files a Chapter 13 to reorganize their secured debt, and then converts the case to a Chapter 7 to get rid of their unsecured debt. Some use the scenario where a Chapter 7 is filed and when a discharge is received, a Chapter 13 is filed to reorganize the remaining debt. Most theorists would say that converting to Chapter 7 from a 13 should only be used, and is only possible, when a Chapter 13 debtor’s financial circumstances have worsened after filing. Otherwise, someone who filed a 13 with the intention of later converting to a 7, would be planning to fail, and could, in essence, be viewed as abusing the system. When one files a Chapter 13, the creditors have the comfort of knowing that they will be paid part of what is owed, according to the plan the debtor has filed. When someone files a Chapter 7, the creditors all back off and do nothing. At the very least, the creditor can report the money owed as a loss for that calendar year, a direct deduction from gross income. There do not appear to be yearly figures available for the number of Chapter 13 bankruptcies which have been converted to Chapter 7, nor do there appear to be any statistics available for those converting a 7 to a 13. The Bankruptcy Code allows the debtor to convert a chapter 7 case to a chapter 13 case as long as the debtor is eligible under the new chapter. However, a condition of the debtor's voluntary conversion is that the case has not previously been converted to Chapter 7 from another chapter.  In addition, a debtor cannot receive a Chapter 13 discharge if the debtor has received a Chapter 7 discharge within the last 4 years. Moreover, a Chapter 13 debtor who suffers a drastic loss in income, has a right to convert the case to Chapter 7. So, there are two forms of Chapter 20 Bankruptcy, which combine 7 and 13. One being a 7 followed by or converted to a 13, and the other being a 13 followed by or converted to a 7. In either scenario the debtor is required at all times to act in good faith. Here is a link to a case which discusses Chapter 20: http://www.rib.uscourts.gov/D/1998/Keachcnf.PDF

The Two Entity Theory in Bankruptcy

When you file for Chapter 7 Bankruptcy protection, you create a new, separate, and distinct legal entity from yourself. It is called your bankruptcy estate and is comprised of everything you own and everything you owe, on the date that you file a petition. It has a life of its own which lasts for a number of months. The second entity is viewed as you without all of your debt and is called your post-petition estate. In theory, these two entities are distinctly different. The trustee in bankruptcy can get at any non-exempt assets which you own on the date of your filing, but cannot get his or her hands on things that came into your possession on the day after you file bankruptcy. If you had an income tax refund or an inheritance coming to you on the date you filed, these items are part of your bankruptcy estate. But if you win the lottery on the day after you file bankruptcy, in theory, the trustee cannot get at those funds because they are part of your post-petition estate. In all likelihood someone who wins the lottery shortly after filing, would probably want to pay off their debts with the winnings, and would probably make a motion to have the bankruptcy dismissed.  Bankruptcy has long been viewed as a system of people helping other people out of debt. It rarely becomes adversarial. Most creditors back off when you file for bankruptcy, because the automatic stay prevents them from trying to collect the debt or even calling you on the telephone. The clean slate or fresh start are available, you can legally erase the debt. If your expenses exceed your income and you just cannot make ends meet, you may want to create a new, separate and distinct legal entity which will help you get out of debt.