Heidi and Spencer’s Debt and Bankruptcy Problems Not Uncommon

Heidi and Spencer’s Debt and Bankruptcy Problems Not Uncommon

The news that reality television stars, Heidi Montag and Spencer Pratt, are broke and contemplating filing for bankruptcy should not be too surprising. As with many people who encounter rapid wealth at a young age, Heidi and Spencer have fallen into three of the more common debt traps that send many people on financial downward spirals, especially young celebrities.

First, few of us would likely be surprised by the squandering of money in pursuit of more fame and fortune by two young celebrities. According to Life & Style, they rapidly blew through $10 million. Here are some of their follies: renting a posh $35,000 per month Malibu pad; spending $3 million on Heidi's panned music career including buying songs for $40,000 each; renting studios and paying producers; throwing hundreds of thousands on Heidi's surgeries and aftercare; and, of course, the usual six cars, healing crystals and private jets.  This type of spending, while extreme, is not uncommon when people suddenly accumulate large amounts of wealth and anticipate more to come. The problem for Heidi and Spencer, as with countless others who receive large wealth over a short time period, is that they expected the spigot to continue to gush out an endless supply of money and they could not conceive that someday it would slow up to a trickle.

Second, don't mess with the IRS. Unfortunately for young celebrities, the IRS is not affected by one's celebrity status. It clings to the old fashion notion that everyone must file pay taxes and file their tax returns. When you flaunt your wealth, the IRS is bound to notice.  The IRS is a very serious and determined agency with powers that allow it to fulfill its duties to the United States. Stars should remember when other law enforcement agencies couldn't touch the notorious Chicago gangster Al Capone, the IRS did and he went to prison for 11 years. Young celebrities caught up in the whirl of excitement tend to think everyone gushes over them. They should keep in mind that the IRS won't. With any sudden accumulation of wealth, your first consideration should be to pay your taxes on it. Otherwise, the IRS will catch up with you and they have 10 years to do so. Heidi and Spencer owe the IRS around $2 million and you can expect that the IRS are breathing down their necks.

Third, almost nothing exposes financial issues more than a separation or a divorce. Two can live a higher life style combining their assets than they could otherwise as individuals. After all they can share a studio, or a posh Malibu pad, or a private jet. When they break up and continue to live as before and expect the same style of life, they find they have almost doubled their outflow without having doubled their income. Nothing will expose financial problems more than a divorce. Divorce is one of the three leading factors behind bankruptcy filings. When a couple separates in anticipation of divorce, as Heidi and Spencer did, they confront supporting two expensive life styles on the same income that supported one. It doesn't work - the money simply won't last. Heidi and Spencer have gotten back together after their separation but apparently, it may have been too late.

Read more articles about consumer debt by Ted Connolly, co-author of The Road Out of Debt