In 1996, Oakland native and rap superstar M.C. Hammer, whose real name is Stanley Kirk Burrel, filed for bankruptcy. His bankruptcy petition claimed that he had assets of approximately $1 million and liabilities of at least $10 million. He owed over a million dollars to Winterland Records and had liabilities to two different Bay-area lawyers. Due to the bankruptcy, his house was auctioned off.

Back in the 1990s, MC Hammer’s star rose quickly. With fame, he had a 200-person crew that cost him $500,000 a month and his mansion in the Bay area cost $30 million. In just six years after his release of an album, he filed for bankruptcy because his star burnt out.

In 2012, former Major League baseball star Curt Schilling filed for bankruptcy to avoid losses from investing in a video game company. Schilling earned approximately $114 million over the course of his career. The fallout was immense: Schilling was forced to sell his home and his famous “bloody sock” just to pay off creditors.

These are two prolific and brilliant performers who fell into financial ruin for different reasons. Hammer lived a lifestyle that can only be supported by a huge star whose stardom would not waiver. He was a huge star, but his stardom had a short shelf life.

Schilling, in contrast, had issues with an investment, not with his overall lifestyle. Generally, people incorporate so they do not have personal exposure to their business dealings. In the case of Curt Schilling, he believed in his business idea so strongly that he was willing to personally guarantee a business loan, thereby exposing himself to personal liability.

In contrast to “regular” people, large consumer bankruptcies have a Chapter 11 option. Generally, the average person facing debt issues will turn to the United Bankruptcy Code’s Chapter 7 or Chapter 13 to help them solve their debt problems. In theory, those same individuals can file a Chapter 11 case, but, for reasons to be explained, Chapter 11 is not a realistic option. In contrast, large individual bankruptcies wherein a consumer has significant resources, though he or has even more significant debt issues, have a realistic option of utilizing Chapter 11.

Chapter 11 v. Chapters 7 and 13

Chapter 11 bankruptcy has many similarities with Chapter 7 and 13, including core bankruptcy provisions like the automatic stay and discharge from debt. There are, however, a number of differences, some that will be highlighted in this article.

Chapters 7 and 13 bankruptcy provide a debtor with a basic process that, if completed, gives the debtor a discharge. Chapter 7, also known as straight bankruptcy, is a process wherein a debtor takes all his possessions, minus those possessions that are excepted or excluded, sells those possessions and pays off his or her creditors. Once completed, the debtor has no obligations to any creditors. Chapter 13, also known as the wage-earner’s bankruptcy, is a process wherein a debtor submits a plan to a judge who has the authority to authorize the plan. Creditors may object to the plan. If the plan is approved, a debtor will usually have five years of paying off under the plan. Once completed, the debtor obtains a discharge and has no obligations to creditors.

Chapter 11 bankruptcy is a different animal. It is less about process and more about negotiation. Once a debtor files a Chapter 11 petition, he or she can benefit from the automatic stay. At this point, creditors are broken into different classes with different rules, based on group. Some classes of creditors have priorty liens, some are secured creditors, some are unsecured, and more. It is now up to the parties to negotiate an agreement.

The negotiations can be difficult. Some creditors may want certain things while other creditors want to go in a different direction. Often, a debtor will join with a creditor or group of creditors against other creditors. For instance, the debtor may want to hang onto his or her house and his or her mortgage company creditor wants that too, while the lender for the debtor’s car loan wants to sell the house to recoup the financing owed for the fleet of luxury cars.

This can be a long process, especially where the debtor has multiple millions of debt to a number of creditors. The length and complexity of the process can make this an expensive proposition, which is why the average debtor does not utilize Chapter 11.

In debt, bankruptcy may be the solution to your problems. To see if bankruptcy is right for you, contact the debt relief law firm of Melanie Tavare, a Bay-area bankruptcy attorney.