Back in June, Gary Roth, Head of Business Affairs at BMI, posted an article on the organization’s website explaining the potential ramifications of bankruptcy on songwriters and composers. This information is timely, especially in a state like Tennessee where we have the highest bankruptcy rates in the nation.
Many people do not realize that not only their copyright, but also their royalty income (i.e., public performance royalties, mechanical royalties, synchronization royalties, performance royalties, etc.) are considered “property” for bankruptcy purposes, just like any other piece of property, tangible or intangible. When a debtor files a Chapter 7 bankruptcy seeking liquidation of his debt, this property is subject to collection by the U.S. Bankruptcy Trustee, whose job is to try and use these assets to pay creditors. These assets can be sold by the Trustee, by auction or otherwise, to satisfy debts.
This is a very real probability.
I have represented both songwriters contemplating bankruptcy and publishers and other investors who have purchased these rights from the Trustee. In many cases I have learned that the songwriters were never even made aware that they could lose their copyrights and their rights to royalty income in bankruptcy. Either their bankruptcy attorneys never told them, or the writers never volunteered the information to their bankruptcy attorneys. Either way, they lost the rights to income from some significant copyrights and in some cases, the copyrights themselves.
One should always consider the risks of losing their rights to royalty income from their songs before filing a petition in bankruptcy.