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David Cassidy: Why He Filed Chapter 11 Bankruptcy

As has been reported in the news recently, David Cassidy has filed for chapter 11 bankruptcy in Florida. This filing comes as the capper to several bad things that have happened to the actor, including three DUI charges (in 2010, 2013, and 2014) the last of which led to 90 days of rehab and 5 years probation, and his wife of 23 years filing for divorce last February.

But why file chapter 11? Don’t only businesses file those? Why not just file a chapter 7 to get a fresh start or a chapter 13 to make a payment plan to creditors? Although the Times article does not give an answer, I suspect part of it has to do with his debt load.

Mr. Cassidy has been quoted as saying that he filed bankruptcy to "restructure his finances." This means that he intends to pay his creditors at least a portion of what he owes them. Those finances include, as has been reported, upwards of $10 million in debt. Thus his debt alone may have him in a chapter 11.

This becomes the issue, because according to the bankruptcy code, you cannot file a chapter 13 bankruptcy if you have more than $383,175 in unsecured debt or more than $1,149,525 in secured debt. 

This is a point often missed by those considering bankruptcy and looking to file a chapter 13. It is not that unusual for someone to have more than $200,000 in student loan debt and over $100,000 in credit card or other unsecured debt.

This could prevent them from reorganizing in a chapter 13, to save their home, for example, and force them into a chapter 11, which can be far more expensive in terms of attorney’s fees and filing fees.

This is not a common occurrence, but it does happen. So keeping an eye on your debt load can be critical to your available bankruptcy options for a fresh start.