Blue Jackets' Jack Johnson Files for Bankruptcy: 3 Lessons
Columbus Blue Jackets defenseman Jack Johnson has earned more than $18 million over his nine-year NHL hockey career. But according to bankruptcy documents filed last month in federal court, it's almost all gone.
Not only is Jack Johnson broke, but Johnson has outstanding debts of as much as $15 million, reports The Columbus Dispatch. And while the story of a professional athlete squandering large sums of money is nothing new, Johnson's path to bankruptcy has an especially cruel twist. Many of the financial decisions that led him to this point were made by his parents, to whom he had given full control of his finances.
What can be learned from Jack Johnson's bankruptcy? Here are three lessons:
- What is bankruptcy? Bankruptcy allows individuals or businesses with an overwhelming amount of debt to get rid of that debt through the bankruptcy process. Individuals typically file either a Chapter 7 or Chapter 13 bankruptcy depending on the level of debt and amount of income. In Johnson's case, he is filing for Chapter 11 bankruptcy -- normally reserved for businesses -- because of his high earning potential and large amount of debt.
- Be careful granting power of attorney. Though a power of attorney may be most readily associated with making healthcare and financial decisions for people who may become physically or mentally incapacitated, a power of attorney can be granted under a wide range of circumstances and for an array of purposes. In this case, Johnson gave his mother financial power of attorney, granting her the legal power to make financial decisions for him. Unfortunately, she made several unwise decisions, including taking out a large number of high-interest loans, purchasing a $1.5 million dollar home, traveling, and buying cars, all on Johnson's dime.
- Consult your own attorney. According to the Dispatch, Johnson began trying to dig himself out from his financial hole when he hired his own attorneys earlier this year. Even in financial transactions that involve family members, retaining an independent attorney to review agreements or assist in the drafting and signing of legal documents such as powers of attorney may help prevent you from being taken advantage of.
Under Johnson's 2011 contract, he is set to earn $5 million this season from the Columbus Blue Jackets. The team told the Dispatch they were aware of Johnson's situation and are "standing beside him."
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