Bankruptcy | Kanye West’s $53 Million Debt

Bankruptcy . To many Americans, celebrity debt sounds and looks horrific. Announcements like Kanye Wests’ $53 million debt seem unbelievable, especially when the average American holds over $20,000 in debt from student loans, auto loans, and credit card bills. The amount is even greater with an average $70,000 mortgage, but that doesn’t come close to the millions Kanye West owes.

So how can Kanye West avoid bankruptcy? With $53 million in debt, how is he still buying furs for his family and avoiding homelessness? We can learn a lot from Kanye by understanding his debt-to-income ratio and the difference between good and bad debt. Here’s what Kanye’s $53 million debt means, and how his financial situation can teach us about money and debt.

The Breakdown of Kanye West’s Income-to-Debt Ratio

With a net worth estimated at $140 million dollars and estimated yearly earnings of $20 to $30 million.  Kanye West makes a lot of money. And though his earnings are only half of what he currently has in debt, this financial picture is actually similar to many Americans.

As  Time Money explains in a recent article his monthly debt payments are likely under 43% of his annual income. This 43% is a reasonable threshold for financial health and is the debt-to-income ratio the government uses to qualify lenders for a mortgage. If his debts have a reasonable interest fee, Kanye might be expected to pay $3 million in debt payments annually, which he can afford. Even if he’s paying a high-interest fee for his debts, Kanye can avoid bankruptcy by increasing his earnings and by making better investments.

In comparison, an average American with a college degree might earn $48,000 a year, but owe $20,000 in student loans, $3,000 in credit card debt and $7,000 in car payments. If we assume a total monthly repayment of $2,000 to $3,000, the debt-to-income ratio is still lower than 48%. In cases where Americans have more debt than income, loan refinancing and lifestyle changes can help them achieve a healthier profile before filing for bankruptcy. Overall, it’s not uncommon to have a large amount of debt.

The Difference Between Good and Bad Debt for Kanye

Even if Kanye can continue to make debt repayments today, will he eventually have to file for bankruptcy, like celebrities like 50 cent or MC Hammer?

To determine whether or not Kanye will have to file for bankruptcy, it’s important to understand what type of debt Kanye has. For example, good debt–student loans, real estate loans, business loans, and mortgages–help build value over time. These debts are a great investment because they pay off in the long run. For example, student loans for an advanced degree will increase your income and qualify you for higher-paying jobs.

In Kanye’s example, most of his debts are created by brand and business investments. By investing in his name, company, and business endeavors, he’s creating more opportunity to earn more money. And although some of his endeavors have failed–like former clothing lines and his Nike shoe partnership–his debt is still technically “good” and can create value over time. As long as he–and other Americans–invest their money in debt that grows in value, that debt does not have to be a burden. Overall, it’s true that you have to “spend money to make money,” especially if you’re running a business.

However, Kanye’s bigger problem is his spending. By purchasing extravagant gifts and living an expensive lifestyle, Kanye can eventually put himself in a tough financial situation that requires bankruptcy. Credit used for extravagant clothes, cars, dinners, and parties provide no returns. In addition, the value of these purchases decreases over time while the interest rises. If he doesn’t save his money and if his investments don’t provide high returns, Kanye might end up filing after all.

Americans face the same risks: high credit card debt, job loss, unexpected expenses and a lack of savings. Without proper money management, bankruptcy might be the only answer. If you’re considering filing for bankruptcy, the best place to start is by speaking with an experienced bankruptcy attorney. Try our free attorney locator to find an attorney in your area.

Specializing in bankruptcy and foreclosure law for over 20 years. Call attorney David Pinkston for a free consultation today: (904) 389-5880. If you are thinking about #bankruptcy, #chapter13bankruptcy or #foreclosure in the Jacksonville, Florida area, you should call attorney David Pinkston. David is very experienced with all aspects of bankruptcy law yet very personable and easy to talk to. Call Us Today! (904) 389-5880