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BK as it pertains to those who may receive "Residual Income"

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    BK as it pertains to those who may receive "Residual Income"

    Hello...

    I wonder if you might take a moment to address a question I can find NOTHING about in a city filled with actors, writers, directors and producers - many of whom I'm sure my question applies to. My better half, (an actress - I will call "Mandy"), is in the process of filing Chapter 7 (largely due to years of snowballing credit card debt). After turning in her paperwork listing her assets we were blindsided when her Trustee requested information about Mandy's potential future income in the form of residual payments for TV shows she appeared in prior to her filing date. We learned that the Trustee deemed this "potential income stream" as an asset to be declared and to be considered in the adjudication of Mandy's case. Full disclosure - Mandy did enlist the services of a local, newly-established attorney who assisted in filing the initial paperwork. However, he was very upfront in disclosing that he had little experience with bankruptcy and was caught as equally unaware as us when the issue of residual payments came to the fore.

    As stated we were all surprised, but upon reflection, cede the basis for an argument that acting gigs indeed hold "potential" for future income - but the absurdity of it is that there is NO WAY to determine IF, WHEN and HOW MUCH that income might be. The factors that determine whether there would ever be future payments on any given production are so myriad, varied, and unpredictable that it is virtually impossible to value something that may or may not ever occur - at some point in the future. Not to mention that the residual payment structure for Screen Actors Guild is based on a very complicated sliding scale dependent on type of broadcast (cable, network, Internet, DVD sales and rentals, foreign broadcasts, etc., etc.), the popularity and demand for the given program (which determines frequency and geographic penetration of broadcasts), not to mention constantly renegotiated contracts between the Guild and the various Producers and Networks who pay the reuse fees.

    Is there any advice, words of wisdom, experience you may have had with this, case law precedent - anything - you can impart to help us work with the Trustee to get her to grasp that these future earnings are potential at best and that there is no way to honestly and fairly value this as an"asset". Her current plan is to redirect to her all residual checks issued to Mandy from the payroll companies and then redistribute these monies to the debtors until the 50K debt is paid off. This presents administrative nightmares for Mandy for potential decades (as residuals often are issued for as little as pennies) and Mandy has no way to know that they are not cashing checks for residual income being issued for jobs booked after her filing date (payroll companies often combine several payments for various shows they represent into one paycheck). Also it's problematic from the standpoint that, like most showbiz folk, Mandy also collects Unemployment Insurance and is required to report VERY TIMELY weekly reports to the EDD reporting every cent that is issued to her in residuals and that if these checks are sent to the Trustee, she will have no way to fill out a Weekly Continued Claim Form with the income reporting demanded by the EDD (a bureaucracy that operates by strict rules and policies and one which getting a PERSON to communicate with is an impossibility).

    Thank you very much for taking the time to reads this. I know it's loaded with questions so any of them that you choose to address at least provides more information that we had previously.

    #2
    I don't think if a trustee can keep a bankruptcy case open indefinitely to collect checks and disburse them to creditors. The trustee's job is to liquidate assets and distribute the proceeds to the creditors, not to hold an asset forever in order to collect income from it. The asset needs to be valued, so it can be listed on an amendment to the BK petition and exempted if there are exemptions left to cover it.

    I once had to deal with valuing the rights to film royalties for estate tax purposes. It's very hard to value this type of asset because there isn't much of a market and when these kind of assets are sold, the details are not usually public. Mandy needs to find an appraiser who specializes in valuing residual rights and simlar assets. I bet there is somebody in your neck of the woods who can do it. Mandy's attorney should help. The fact that he said he had very little experience, is no excuse to not work to figure out how to deal with this issue. I am sure other bankruptcy attorneys in the area have had to deal with this. He needs to reach out to them for advice on the situation and/or a referral to an appropriate appraiser. He could also try checking with probate attorneys in the area. I am sure this kind of valuation issue comes up all the time when successful people in "The Business" die. If he doesn't have anybody to turn to (as every attorney in a new practice area should), it's time for him to get on PACER and search for other cases that have this kind of asset to figure out what to do.

    It is possible that if the petition is amended to list the asset and it is not exempt, the trustee will abandon it anyway because it would be too hard to sell. That is something else the attorney needs to figure out so he can advise as to an appropriate strategy. It's time for him to get some experience!

    ETA: Another thought about finding an appraiser. The probate courts appoint "Probate Referees" to appraise all kinds of assets in decedent's estates. Sometimes they hire other appraisers to value assets that require a special expertise. It is their job to value every asset in an estate, no matter how difficult. You might be able to get a friendly probate referree to recommend an appraiser. One also may be willing to appraise the asset. I don't know how well such an appraisal will hold up in bankruptcy court, but it's up to the trustee to object to the value before you have to fight over the appraisal. You could at least use a probate referee's valuation as a starting point for negotitions with the trustee. You can search for a local probate referee at http://probatereferees.org/
    Last edited by LadyInTheRed; 08-15-2012, 05:12 PM.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

    Comment


      #3
      Hi showhost:

      Welcome to the forum. You have an excruciatingly difficult question. This is almost like asking someone what their future dividends on a piece of stock might be. Though I know that trustees will ask about stock and bonds that are not part of a Retirement Instrument of some kind.

      Here is a link to a thread about Intellectual Property Rights as the creator of a piece of music that the company she sold it to went bankrupt:



      I do not know how that came out, the OP did not follow up. There may or may not be one or two other similar threads. I know there was a question about the possible future income concerning a manuscript in question that was not completed, and therefore never published.
      "To go bravely forward is to invite a miracle."

      "Worry is the darkroom where negatives are formed."

      Comment


        #4
        The issue is actually fairly straight forward. As stated, the trustee cannot keep the case open indefinitely in the hopes of collecting uncertain royalties. Either, you can offer the trustee some amount of money to make this go away (which is probably what the trustee is angling for), or the trustee needs to find someone willing to buy the rights.

        Comment


          #5
          Something else I meant to mention about valuation. There is a formula used to determine the value of future income based on past income that is used by the IRS that you could probably find with some research. That may work if there is a long enough income history.
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

          Comment


            #6
            I don't know if this will help in the way LadyInTheRed suggests, but here are some more threads you might wish to ponder:











            Good look to you!
            "To go bravely forward is to invite a miracle."

            "Worry is the darkroom where negatives are formed."

            Comment


              #7
              Lady's response is on point.

              1. The residual royalty potential is an asset and should have been listed on line 22 of Schedule B (patents, copyrights and other intellectual property). This Schedule must be amended. If your wife cannot place a value on it, she describes it in as much detail as possible and then lists the value as "unknown". Explain why its value is "unknown".

              2. If your wife wants to keep her rights to the asset she has 2 choices. . . 1) purchase it from the Chapter 7 estate or 2) convert the case to a Chapter 13 (I assume she is within the debt limits). The conversion could be challenged by the Trustee as being done in "bad faith" due to her failure to disclose the asset (even if such failure was innocent)

              3. If the asset really has no value and your wife is not all that excited to buy it back, let the Trustee have it. Lady is correct. He is not going to hold the case open indefinitely. He is going to sell the rights to the future potential income stream to whomever will buy it and for whatever price the market will bring.

              4. Just remember, until such time as this issue is ironed out, if your wife receives any income from this asset she MUST turn that income over to the Trustee.

              I have had this issue pop up a few times - authors, musicians, photographers, someone who owned a movie that was in production and even a reality show participant. In these types of cases, if we did not want a 7 Trustee meddling we would simply file a 13 or 11. If we did not care we went for the 7. As to valuing the asset, if I recall correctly, we listed the value as “unknown” since we were not dealing with “A list celebrities” and did not know if there was a market. The one with the movie was in a fight with a partner and the Trustee took over the fight - we simply did not care.

              If your wife’s attny does not know how to handle the issues please find one that does.

              Des.

              Comment

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