How Royalties Can Affect Bankruptcy

The Los Angeles area attracts entrepreneurs, inventors, and creators of all types. Unfortunately, no matter how creative people are, they may hit hard times due to unforeseen circumstances. Whether you worked at a promising startup or were part of an innovative team that holds copyrights or patents, your employment contract may have included royalty payments. Although not common, it could affect your bankruptcy.

What are Royalties?

Royalties stem from licensing. They are the payments in exchange for the right to use something that another person produced or owns. Royalties are granted by agreement, and you may benefit from an income resulting from the use. Common royalty payments include those for:

  • Oil, mineral, and gas properties, also called mineral rights
  • Specific patented products, such as music, photographs, videos, books, or concerts
  • Inventions
  • Public licenses such as those for cable operators, satellite carriers, and importers of various digital goods

There are a variety of contract types. For example, the agreement for using digital performances and streaming may differ from those for mineral rights. However, if you have intellectual property protection on any property and have an agreement in place allowing its use for a fee, chances are you receive royalty payments.

Royalties in Chapter 7

Any revenue generated by royalties is part of your bankruptcy estate. This includes income from contracts that are in effect when you file for bankruptcy. When filing Chapter 7, the court assigns a trustee who examines your property. Their goal is to liquidate whatever non-exempt assets you have in order to pay your debts. All copyrights and patents become part of your bankruptcy estate. It’s up to the trustee to decide whether collecting the royalties and keeping the estate open can provide a dividend to your creditors.

Depending on the amount and frequency of the income, the trustee may try selling your right to receive royalties or the copyright itself. If the revenue stream is small and inconsistent, they may return the asset to you.

Royalties in Chapter 13

Royalties count as income in Chapter 13. You must disclose all income when filing bankruptcy, including:

  • Wages, tips, and salaries
  • Dividends, interest, and royalties
  • Net income from a business, farm, or profession
  • Child or spousal support
  • Annuity payments
  • Unemployment compensation

Courts look at your current monthly income from all sources during the six months before your filing date to determine your disposable income, which must be pledged to your monthly plan payment.

Reach Out to Attorney Terrence Fantauzzi Today

If you get a regular paycheck in the same amount each pay period, it is easier to determine if you qualify for Chapter 7 bankruptcy.  However, if you work for yourself, or receive any bonuses within six months of filing bankruptcy, it may make the process more complex. Contact me to schedule a free consultation. From Los Angeles to Riverside, everyone’s situation is unique. We can work together to create the best strategy for you to help you get your finances back on track.

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