- Assets in Chapter 7 and Chapter 13 Bankruptcy Cases
- What Is Property in a Bankruptcy Case?
- How Are Assets Protected in Chapter 7 and Chapter 13 Bankruptcy?
- Valuing Copyright, Trademark, Patent, or Domain Name Ownership Interests in Bankruptcy
- Copyright, Trademark, Patent, and Domain Name Ownership in Bankruptcy: The Bottom Line
Copyright, trademark, and domain names owned must be disclosed and valued in your Detroit bankruptcy case, along with any other forms of so-called intellectual property.
This Article will discuss why this is the case—and how you can identify intellectual property assets and how to assign a dollar-value to them.
First, however, we will discuss some basic information regarding asset disclosure and valuation in the Michigan bankruptcy process.
Assets in Chapter 7 and Chapter 13 Bankruptcy Cases
In a Chapter 7 or Chapter 13 bankruptcy, you are required to disclose all of your assets. In either form of bankruptcy, the value of your property plays an enormous role in the outcome of the proceeding.
Depending upon which form of bankruptcy you file, the nature of that role is a little different—but that your assets must be identified, valued, and listed is a common truth.
In a Chapter 7 bankruptcy proceeding, your assets, if valuable enough and not protected by your available bankruptcy exemptions, may be seized from you by the Chapter 7 Trustee assigned to your case in order that they might be sold off and the resulting proceeds used to compensate, or partially compensate, your creditors.
In a Chapter 13 bankruptcy proceeding, your assets are never seized from you—but, if they are very valuable, you will need to make a larger payment each month into your Chapter 13 bankruptcy payment plan in order that your creditors are suitably compensated.
In other words, as a process, bankruptcy is designed to ensure some level of fairness to your creditors. While the US Bankruptcy process will indeed free you from unmanageable debt, it will not allow to you to drive home from the Bankruptcy Court in a free-and-clear Maserati.
What Is Property in a Bankruptcy Case?
Before answering this question, it is necessary to point out that, when you file a Chapter 7 or Chapter 13 bankruptcy, you automatically, by function of law, create something called the Bankruptcy Estate.
This Bankruptcy Estate is like an invisible house that, for the duration of the bankruptcy proceeding, contains everything that you own or have any interest in as of the date of filing of the case.
The Bankruptcy Court, in the person of the Chapter 7 or Chapter 13 Trustee assigned to your case, holds the keys to that “house.” You’ll get them back when the case is over—but it may be a little emptier than it was when you filed for bankruptcy!
While the case is pending, you cannot remove anything from that house, or Bankruptcy Estate. You cannot sell anything. You cannot gift any of it away.
The reason this is worth pointing out is that “property” in the bankruptcy context is defined in relation to this Bankruptcy Estate.
Property in a bankruptcy case is the stuff you own or can claim to own that will be locked into that house the moment you file the case.
If anything you own or have a claim of ownership over does not end up in the Bankruptcy Estate when you file, it is only because it is one of the types of property that the US Bankruptcy Code says is not an asset of your Bankruptcy Estate.
An example is money that you’ve placed into Education IRA more than 365 days prior to the filing of the bankruptcy case. This is not “property” of the Bankruptcy Estate because it is listed in the Bankruptcy Code as an exception to the general rule that the Estate contains “… all legal or equitable interests of the debtor in property as of the commencement of the case.”
Even property that is not an asset of the Bankruptcy Estate must generally still be disclosed, however—but properly, to avoid any confusion.
So is a copyright, a registered trademark, a patent, or a domain name or some other form of intellectual property an asset of the Bankruptcy Estate?
Can it be sold, transferred, or assigned? (Hint: the answer is “Yes.”) Such properties must absolutely be disclosed.
The trick will be to assign the correct value.
However, first one more preliminary discussion before we talk about intellectual property valuation in bankruptcy: asset protection in Chapter 7 or Chapter 13.
How Are Assets Protected in Chapter 7 and Chapter 13 Bankruptcy?
Most people who file for Chapter 7 bankruptcy do not lose any property at all.
Most people who for Chapter 13 bankruptcy do not find their monthly payment plan amount increased by the value of property.
This is because the Bankruptcy Code allows you to exempt, or remove, certain types of property from the Bankruptcy Estate, to given extents.
If an asset is fully “exempted” up to its full fair-market dollar value, it is essentially removed from the Estate entirely and cannot be seized by a Chapter 7 Trustee or valued into your Chapter 13 Plan payment.
The exemption amount caps vary depending on what sort of property you’re talking about. These bankruptcy property “exemptions” are statutory, meaning that they are provided for by the language of a statute, or law.
In Michigan, we have the option of using the “Federal” exemptions drafted into the US Bankruptcy Code or, alternatively, state exemptions drafted into a Michigan state statute.
The reason that most debtors do not, for instance, lose property in a Chapter 7 is that, between these two statutory sources, the exemption amounts are quite robust. They are more than adequate to protect all of what most people tend to own.
For example, the Federal household goods exemption amount is, as of this writing, $13,400. This will more than protect the used furniture, clothing, dishware, cookery, linens, and more that most households tend to own. (Hint: Think “garage sale value” for these things!)
There are many different exemptions for many different types of property.
However, there are not exemptions for all types of property.
One type of property for which there is no exemption at all is—intellectual property.
For this sort of property ownership, the only possible exemption is what is a Federal exemption called “the wildcard exemption.” It can be used to cover any type of property at all, and it provides approximately $13,000 in exemption amount (double that for a joint, married filing).
However, the wildcard exemption is not a “stand alone” exemption as is the household goods exemption in the example above.
Instead, it is actually a piece of the “homestead” exemption that is needed to protect the equity you have in your primary residence. If you rent your home, live in a house owned by someone else, or do not have any equity in your home, only then do you have the full “wildcard” exemption available to you.
If you have some equity but not $13,000 worth, you may have part of that wildcard exemption amount available to you—but not all of it.
The wildcard exemption must also be used to protect other sorts of property for which there is no specifically allotted exemption, such as—importantly—the cash in your bank accounts, tax refunds expected, stocks and bonds outside of a retirement plan, hobby and sports equipment, business ownership interests, and more.
$13,000 does not go far, in light of this.
Valuing Copyright, Trademark, Patent, or Domain Name Ownership Interests in Bankruptcy
Thus, when you do own a copyright or a patent or hold a registered trademark or domain name, the key question is always going to be what that particular intellectual property asset is worth in fair-market terms.
This is a very difficult question. Much more difficult than coming up with a value for a used car, for instance.
Do you own an intellectual property asset to begin with?
Bear in mind these facts about intellectual property ownership under US law:
- If you created something “expressive” (a song, a painting, a novel or screenplay, or a graphic design) and committed it to “tangible” form (physical or electronic), then you own the copyright whether you registered it with the US Copyright Office or not.
- You can’t register a copyright for an idea.
- You don’t own a patent or trademark unless you have registered the trademark with the US Patent and Trademark Office (USPTO).
- You may still have common law (non-statutory) ownership rights to a brand or a brand’s goodwill if you are selling something (product or service), however.
- A trademark registration only belongs to the person or company using the mark in relation to the sale of a product or service in interstate commerce. It is debatable whether this could apply to a Chapter 7 bankruptcy trustee, unless he or she is stepping into your shoes to operate your business—and, even then, whether this is a proper assignment under the US Trademark Act and USPTO rules is highly debatable. Discuss with your lawyer.
- If you have a website, you have a domain. It has a value, high or low.
- If you have purchased multiple domains that are achingly similar to the brands of famous companies with the intent of “selling it back,” this is domain hijacking and it is illegal. Rather than owning something of value, you may be the target of a UDRP lawsuit or trademark infringement claim. Discuss with your bankruptcy attorney.
Long story short, if you’re not sure whether you own an intellectual property asset, you need to discuss the possibility with an experienced Detroit bankruptcy attorney before filing a Chapter 7 bankruptcy in particular.
What if you do own one, then? What’s it worth? Naturally, property is only worth what someone is going to pay for it.
For most “regular folks,” the song they wrote as an anniversary present to a spouse or the painting of grandma’s cat hanging on the living-room wall are not going to be worth much—but they are still copyrights owned that should be disclosed, listed, and, to whatever extent, valued.
If you self-publish werewolf romance e-novels on Amazon (they exist!) that may not be huge best sellers but still provide a stream of monthly income in any amount, there is value there (and income) that needs to be explored with your Detroit bankruptcy attorney.
If you are in business and your branding carries significant value, you may need a professional valuation of your intellectual property assets before you step anywhere near a bankruptcy court. Likely, a Chapter 13 bankruptcy is going to be your better option.
Copyright, Trademark, Patent, and Domain Name Ownership in Bankruptcy: The Bottom Line
The bottom line is that all property, intellectual or physical, must be carefully catalogued and valued with the guidance of an experienced Michigan bankruptcy attorney before you file for either a Chapter 7 or a Chapter 13 bankruptcy.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully represented thousands of Detroit-area Chapter 7 and Chapter 13 clients for over 30 years.
If you own a copyright, patent, trademark, or domain name and are considering filing for bankruptcy, contact us now to schedule your free, initial consultation.