Artificial Intelligence and the Future of Bankruptcy in Michigan

Who hasn’t read 19 different articles on recent developments in Artificial Intelligence (“AI”) at this point? Many in the media have already commented on the changes AI will bring to the jobs performed by journalists, researchers, and other professionals. But how will it change the bankruptcy process and bankruptcy experience for Michigan residents?

AI will sooner than later affect the question not only of what assets are owned and how they are valued by debtors in Chapter 7 and Chapter 13 bankruptcy but also how information is verified, researched, and investigated by creditors, Trustees, and other parties within the consumer bankruptcy process.

This Article will explore these questions, despite the fact that, as of this writing, they remain somewhat hypothetical. (But not for long, we firmly predict.)

First, let’s define our terms. What is AI? Why all of the sudden conversation?

 

What Is Artificial Intelligence?

 

“Artificial Intelligence” refers to the development of computer systems that can perform tasks that typically require human intelligence, such as recognizing speech, identifying objects in images, and making decisions based on data.

AI algorithms are designed to learn from and make predictions or decisions based on large amounts of data, rather than being explicitly programmed for every possible scenario. AI is used in a wide range of applications, from natural language processing to self-driving cars. It is a transformative technology that has the potential to revolutionize many industries and aspects of everyday life.

The increase in publicity and even panic over the evolution in AI was triggered by the market release of the ChatGPT product.

What is ChatGPT?

ChatGPT is a language model that is capable of generating human-like responses to natural language prompts. It was designed to be able to answer a wide variety of questions and engage in apparent conversations with human users. While ChatGPT is just one example of AI technology, its ability to simulate human responses and to at least appear to be able to think creatively have made a real media impact.

Many industries and software providers are incorporating the latest evolution of ChatGPT technology into their platforms. Google and Microsoft and other web-search providers are scurrying like rats to catch up to the ChatGPT advance.

It will not be long before this technology infiltrates the bankruptcy system in the U.S. in one form or another.

First, let’s look at how AI-produced content is or isn’t considered a form of intellectual property as of this writing.

 

Intellectual Property Assets in Bankruptcy

 

The question of whether or not artwork or fiction or poetry or any “creative” content produced by or with the assistance of AI is registrable as a US copyright (or even a patent, if a technical design or system) has been a hot topic in intellectual property circles.

Why is this important for bankruptcy?

It is important because, in a bankruptcy filing, all assets owned  by the debtor filing the Chapter 7 or Chapter 13 case must be disclosed and assigned a monetary value. In other words, you have to list all of your stuff and what it is worth in fair market value terms.

You are required to do this because it determines whether or not your creditors will or should be repaid any of the money that you owe them through the bankruptcy process.

The mechanisms for this creditor repayment differ from Chapter 7 (asset liquidation) to Chapter 13 (plan payment increase) and are discussed in detail elsewhere on this blog.

That said, the novel you’ve written is an example of an intellectual property asset. It is registrable under US copyright law, pursuant to the US Copyright Act, by the US Copyright Office. So is the rock opera you composed when you were 19. So is the painting of the evil sorcerer casting a fireball spell at a swordsman. And so on.

Whether or not these things are worth very much on the open market depends very much on who you are and whether or not your work has any consumer demand attached to it. Are you a famous artist? Or are you just some jerk working at the oil change place on corner who won’t shut up about your “genius” rock opera?

Either way, a copyright, trademark, or patent asset must be listed in your bankruptcy petition schedules and valued properly.

So are AI-produced works registrable as, say, a copyright? The US Supreme Court has held that you cannot sue for infringement in Federal Court unless your copyright is registered (or your trademark).

The market value of a copyright arises from demand—but also enforceability. It you can’t enforce your copyright in court against infringers, it really has little value.

So how about AI-produced or AI-partially produced works?

 

AI Intellectual Property Assets in Bankruptcy

 

Can you then register a copyright for a creative work produced wholly or in part by AI technology?

This question is a moving target at this point. As of this writing, the US Copyright Office has launched an initiative to further study the role of AI in copyright registration under US law. However, it has also provided guidance as to how to file an application for a work created partially with AI assistance, as well how to amend an application previously submitted that may be AI-sourced.

It is clear, however, that US Copyright law requires a “human element” in its definition of a work registrable as a copyright. Thus, it is unlikely that a wholly AI-produced work will be deemed registrable as a copyright. But, again, this is an unfolding question.

As to bankruptcy, there is 1 key rule of thumb to keep in mind: failure to disclose any asset is a basis not only for loss of your right to a discharge of debt—but also as a basis for prosecution for the Federal felony crime of Bankruptcy Fraud.

This felony charge carries a potential 5-year prison sentence.

Thus, if you believe you own or have a right to ownership or partial ownership of a copyright, trademark, or patent asset that was produced with or partially with AI, the safest course of action is to disclose the asset in your bankruptcy schedules and work with an experienced Michigan bankruptcy attorney (and perhaps forensic intellectual property valuation expert) on the question of value.

The value may, in the end, be “$0.00”—but the best course of action is to disclose and fight about that with anyone who objects later.

Questions regarding assets and bankruptcy should always be discussed specifically in a confidential and private consultation with an experienced bankruptcy attorney before filing.

 

Other AI Effects Upon the Michigan Bankruptcy Process

 

Aside from this question of disclosure and valuation of assets, Artificial Intelligence may have other effects upon the bankruptcy process.

Debtors filing Chapter 7 and Chapter 13 cases should reasonably expect a number of AI-enhanced software tools to be quickly adopted by Chapter 7 Trustees, Chapter 13 Trustees, creditors, and the attorneys who represent them.

 

1. Trustee Asset and Property Investigation

 

If they don’t already exist, you can expect new background and asset and property investigation software tools to explode into the market.

Trustees (especially Chapter 7 Trustees with the power to seize and liquidate assets) will surely adopt these new tools to ensure that you have fully disclosed anything and everything that has had your name attached to it anywhere in the United States for years and years prior to the bankruptcy case’s filing.

 

2. Instant Chapter 13 Plan Analysis & Objection

 

The primary dynamic in any Chapter 13 bankruptcy proceeding (especially in Detroit) is the process of resolving the slew of objections filed by the Chapter 13 Trustee (and creditors) to the Chapter 13 Plan that your attorney drafts and files for you.

These objections must be resolved in order to have your plan confirmed (approved) by the Bankruptcy Court.

Chapter 13 Trustees currently function like small law firms or accounting offices, with 2-3 staff attorneys and up to 2 dozen paralegals, legal assistants, and other personnel assigned to rake over every Chapter 13 plan filed for little mistakes and oversights than can be magnified into formal Objections.

The bad news for these functionaries in the Trustees’ offices is that, very quickly, AI will be able to do their jobs much more quickly and effectively than they can. Nearly everyone without a Bar license in a Chapter 13 Trustee’s office is going to be redundant very soon.

 

3. Personalized, Instant Bankruptcy Petition & Chapter 13 Plan Documentation

 

The up-side to the above is that your attorney may have similar Plan-drafting automation capability. Software and AI are a two-way street.

Look for bankruptcy lawyers to implement improvements in software to streamline your documentation drafting and petition-drafting process. This will also result in a loss of need for paralegals and other personnel on your own attorney’s end.

It will also likely exacerbate the ability of “assembly line” bankruptcy law firms (otherwise known as “bankruptcy mills”) to further hone their nearly automated client service process.

This may be good for efficiency and for the bankruptcy mills’ profit margins, but there is no reason to believe it will improve these firms’ already shaky customer service levels.

 

4. Improved Fraud Detection

 

Chapter 7 and Chapter 13 Trustees are always on the lookout for cases to refer to the US Trustee as potentially fraudulent.

The US Trustee’s Office is the division of the US Department of Justice tasked with prosecuting instances of fraud in the bankruptcy system (among other things).

AI-enhanced software will enable Trustees and Assistant US Trustees to quickly analyze petitions and financial documentation submitted for evidence of fraud.

 

Artificial Intelligence and Bankruptcy: The Bottom Line

 

The bottom line is that these examples are mere musings—but they are also just the beginning of the incorporation of AI tech into bankruptcy and every other legal process in the United States.

It is all the more important for you to retain an attorney to assist you with your Michigan Chapter 7 or Chapter 13 case who is not only experienced but also up-to-date on the progress of the technology informing the US bankruptcy system.

Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully assisted Metro Detroit Chapter 7 and Chapter 13 clients for over 30 years.

If you are considering filing for bankruptcy, contact us now to schedule your free initial consultation.