Things Warren Sapp can Teach Us About Bankruptcy

It was reported earlier this week that former seven-time Pro Bowl defensive lineman filed for chapter 7 bankruptcy.  While it is nothing out of the ordinary for a retired professional athlete to file for bankruptcy, there are things we can learn about bankruptcy, and chapter 7 bankruptcy specifically from Mr. Sapp’s case.

#1 – Bankruptcy Can Happen to Anyone

In his bankruptcy schedules Mr. Sapp reported income from various sources in the total amount of $115,000 per month!  For those of you with a calculator that is nearly $1.4 million dollars per year.  So why would someone with that type of income need to file bankruptcy?  It happens more than you would think.  I meet with clients who have been making $200,000-$300,000 per year only to get laid off or go through some other life changing event.  When this fundamental shift occurs the monthly expenses and purchases that seemed totally reasonable before now are simply outrageous and everything begins to fall apart.

The lesson we can learn from Warren Sapp is that no matter how much money you make you are not immune from financial difficulties.  The management of the money, not the total amount, is usually what keeps people out of bankruptcy.

#2 – How Can Someone Making $115,000 Per Month Qualify to File a Chapter 7 Bankruptcy?

The second thing we learn is that your income is not the only basis by which you must qualify to file a chapter 7 bankruptcy.  In prior articles I have discussed the chapter 7 means test.  You must qualify to file chapter 7.  We look at your monthly gross income and your household size and compare that to the median income for your same household size in your state.  If you make more than the typical family of your size in your state you may have to file a chapter 13 bankruptcy instead.

Clearly Warren Sapp makes more than the typical individual in whatever state he lives in.  So how is he in a chapter 7?  There are some exceptions to the means test.  First, you only have to pass the means test if the majority of your debts are consumer debts.  Consumer debts fall into the category of your mortgage, credit cards, medical bills, etc.  Income that is not consumer debt are things like business debts, personal guarantees on business debts, taxes, etc.

While I have not seen Mr. Sapp’s bankruptcy documents, I would assume that the majority of his debts are not consumer debts and that is why he is in a chapter 7 bankruptcy.

#3 – Everyone Knows that Warren Sapp Filed for Bankruptcy – Almost No One Will Know You Filed for Bankruptcy

It would be tough to be a celebrity and go through bankruptcy.  Google “Warren Sapp” and “bankruptcy”.  See how many articles come up.  Shoot, I am even writing an article on his bankruptcy.  If you are famous and/or rich and file for bankruptcy it will be big news.  However, for the typical person bankruptcy is not such a public event.  The details of Warren Sapp’s bankruptcy are out there because the bankruptcy documents are part of the public record.  However, in the every-day bankruptcy case no one other than your creditors and the people you tell will have any idea you have gone through a bankruptcy.

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