5 Chapter 7 Bankruptcy Lessons You Can Learn from Celebrities

If you need some advice about filing for Chapter 7 bankruptcy, look no further than Hollywood's elite. Many celebrities, CEOs, and artists have had to file for one or several bankruptcies, and it isn't only those who are down and out. People at the peaks of their careers have faced financial woes and have managed to dig themselves back out again. Here are some valuable lessons that can be learned from the rich and famous (who may not be as rich as you'd believe).

1. No Backup Plan

What happens when you lose your job or your career takes an extended nosedive? If you're smart, you'll have at least six months of basic living funds available for immediate withdrawal from a special bank account reserved for such a problem. If you're like Sinbad, you'll just sit back and hope the job offers will start rolling in again. The comedian had no trouble finding work in the early 90s, but when jobs dried up he didn't have much of a backup plan and in 2009 filed for Chapter 7 bankruptcy.

2. Overspending

While you can feel sympathy for a person who is bankrupt due to sudden loss of income, it's much more difficult to cry for someone who spends well beyond their means. This is doubly true for celebrities. Toni Braxton had to file for Chapter 7 even though she was performing a series of high paid and sold-out shows in Las Vegas. Odds are strong that her downfall was tossing around cash without a care, especially considering that her home is valued at much less than what she paid for it (another uninformed mistake people make).

3. Lawsuits

Even people with an emergency fund can't always predict the aftermath of a pricey lawsuit. Shortly after Kim Basinger decided it would be a great investment to purchase an entire town in the state of Georgia (for bad investments, see number 4), she was sued for breaching a film contract. The film company wouldn't accept a small town in Georgia as payment for their losses, so Kim was forced to file for bankruptcy.

4. Bad Investments

Debbie Reynolds, an actress most well known for her films from the 1950s, wanted to keep the golden age of Hollywood alive by finding a venue to display her extensive collection of memorabilia to the public. She invested in a casino in Las Vegas and added on the museum in hopes of attracting more customers. The endeavor failed and she was forced to auction off her collection for the bankruptcy.

5. Maintenance

How much money do you require to maintain your lifestyle on a day-to-day basis? Seemingly insignificant costs like food, electricity, and cable bills might be draining your bank account right under your nose. Just ask MC Hammer or Mike Tyson how unaffordable these luxuries can be. They both chose high maintenance living, and feeding a tiger doesn't come cheap these days. Keeping track of daily spending is crucial for financial success.