What Happens to My Intellectual Property and Royalties in a Bankruptcy?

When you find yourself with overwhelming amounts of debt, it can seem like there is no way out. Bankruptcy is a viable option for many people, offering the chance for a fresh start. However, the consequences of a bankruptcy can affect many areas of your life. Your credit will take a hit that’s likely to last for several years, and if you own intellectual property, you run the risk of losing it in bankruptcy.

If you own the rights to songs, movies, books, or other intellectual property, you may wonder how bankruptcy will affect you. Get more personalized advice by calling Padgett & Robertson at 251-342-0264.

Royalty-Earning Assets

If you own any artistic works or other assets that bring in royalties, know that you may lose them in your bankruptcy case. The trustee appointed to your bankruptcy case can sell off your assets in order to repay creditors, and artistic works are valuable assets.

For example, Toni Braxton lost the rights to 27 of her songs when they were auctioned off in bankruptcy, and Isaac Hayes lost the rights to his music when his record label went bankrupt before paying him the $5 million they owed him. He also ended up declaring bankruptcy and lost the rights to his songs.

Please note, however, that intellectual property is subject to special treatment in bankruptcy. There are lots of factors at play, including ownership status, contractual agreements, and state laws. You cannot simply assume that your intellectual property will be treated the same way as your real estate, antiques, and other valuable assets during bankruptcy.

Royalties

Once you lose an artistic work or piece of intellectual property, you stop earning royalties from it. However, the royalties you earn before and during the bankruptcy process are also at risk. These must be disclosed when you file, as the royalties you earn may disqualify you from filing or be seized to repay creditors.

There have been cases in the past where artists have failed to disclose royalties when filing bankruptcy. This forces the bankruptcy court to take action and reclaim the money owed so that debtors may be accurately repaid.

Protecting Your Intellectual Property

What does this mean for you? Whether you’re a singer, songwriter, producer, artist, or writer, your artistic works are likely very important to you. Not only do they provide income, they are also reflections of your creativity. Unfortunately, sentiment alone is not enough to help you keep your intellectual property during bankruptcy.

Bankruptcy law is very complex, and you need an attorney with an in-depth understanding of this area of law if you want to file. Depending on which type of bankruptcy you choose, you may or may not have options to save your intellectual property from being sold off. This is likely important to you if your royalties are your sole source of income. A fresh start doesn’t mean very much if it also means that you’ve lost your only source of income.

Keep in mind that anything you create after bankruptcy is still yours. While Toni Braxton did lose the rights to 27 songs during bankruptcy, she kept creating music after. Those songs were hers and she is able to collect royalties from them. If you’re in a creative industry, losing your intellectual property may be worth it to you if you are confident in your ability to create new income-producing pieces.

There is a lot of nuance with this topic, and since your future is at stake, you need to talk to an experienced attorney for more personalized advice. They will take a look at your intellectual property, review your contracts, and get a good understanding of how bankruptcy will affect your property. From there, you can decide the best option for your future.

Discuss Your Bankruptcy Concerns with Padgett & Robertson

We know that declaring bankruptcy can be an overwhelming decision, and we’re here to help you understand your options. Depending on your circumstances, a fresh start may await you on the other side of bankruptcy. Set up a consultation now so we can explain your options, get an understanding of your financial situation, and help you decide what your next step is. Fill out our online contact form or call us at 251-342-0264.