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Self-published book sales and Chapter 7

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  • Self-published book sales and Chapter 7

    I've been home for a few hours from my 341 meeting and have a lot to think about. Pretty stressed out. I thought long and hard about posting about this situation, but I decided to do it because while there is a lot of fabulous information here and in other places on the internet, there is very little information about dealing with an income stream from intellectual property. In my case, it is income from self-published book sales that is in question, so I'll try to focus on that aspect.

    My case appeared to go very smooth in front of the trustee until the last question when he asked about my royalty income. He was very kind to take the time to explain that royalties are technically considered an asset of the estate and that he needed time to consider the value of it before he could discharge my case. I completely understand, and fortunately, my attorney and I had discussed this in detail prior to filing. I did not go into this unaware; in fact, my attorney initially recommended a Chapter 13, but after going over the numbers it did not make any sense financially for me to agree to make a huge payment that I cannot afford for the next 3-5 years based off of what my book sales may/may not do. I have absolutely no disposable income, and I knew I was setting myself up for failure if I agreed to do that. My book sales are my entire income; I support myself and my child by this monthly income stream. I know that in the near future I am going to have more expenses with my child attending college, and being in a Chapter 13 would take away any extra income I manage to make and keep me tied to the courts for the next 3-5 years.

    Prior to deciding on Chapter 7, I did a lot of research about intellectual rights and bankruptcy. Other than some high-profile cases involving celebrities or actors, it was tough to find info on IP rights cases, especially on a small scale (as I am NO major celebrity bahaha). I could not find any actual cases where the debtor was allowed to keep the rights to self-publishing book income. There were a few cases about IP rights for music, and maybe one or two for film rights and passive royalty income from actors who appeared in tv shows. Lawyers reporting on these cases mentioned a lot about the value of a passive income stream; although my income is technically "royalties," it is in no way a passive income stream. It takes my hands-on, personal skill set in order to connect with readers, promote my work, and continue to sell my books on a daily basis. If I stop doing the things I do every day, my book sales grind to a halt. I realized that I have a different situation in comparison to something like residuals from a TV show or song. Those things can continue to generate income without the intervention of the creator. My books simply will not sell without my direct, unique skill set, including my direct social media connection to my readers. In addition, there is no contract of publication, no advance was given, and I have no guaranteed amount of contracted royalty payments such as as a traditionally published author would have; I simply create the product, sell it on Amazon, and work my tail off to put in front of customers.

    I went into this aware of the consequences; if the trustee decides my IP is worth something, he may sell it as an asset of the estate. He may decide to abandon it if he cannot value it or decides it is too much trouble to attempt to sell. Best case scenario is that he will abandon it and my case can be discharged. Worst case scenario, he wants to sell the asset. I can't regret not doing a Chapter 13 because I know it would not have worked out for me, and I'm ready to move forward to make my situation better, not do something that is going to make me more financially unsound.

    If there are other authors out there in this sort of situation, there are a few things I've learned you might find helpful. First, when you get into self-publishing, everyone tells you to form an LLC to "protect" yourself. Well, as far as personal bankruptcy, IP rights are considered either your personal property or property of the LLC, so it's really a moot point. The trustee can take it if you can't exempt it, either way. A single-member LLC means absolutely squat in this situation. The second thing is that if you are considering filing bankruptcy, you need to think about not only the books you currently have for sale, but any books you are working on that you created in the time before you filed -- yup, the trustee has the right to that as part of the bankruptcy estate. On an aside, I did kinda have a chuckle to myself when the trustee asked me if I've every tried to sell my books to a publisher; as most self-pub authors have experienced, the market is so saturated that it is nearly impossible to get noticed by a publisher. By the time I had enough books out that a publisher might be interested (because I'd already built my fan base and done the promotion work on my own), I didn't need a publisher anymore. (Dude, I did the whole query and wait thing early on in my career!)

    As for me, I'm in the waiting game. I spoke to my attorney after the meeting, and again this afternoon. The trustee was great, I thought he was thorough and fair. My attorney thinks there is a very good chance the trustee will look into the situation and decide to abandon the asset, so I'm hoping for that. (He even said I did a great job explaining it briefly to the trustee, stressing how the income is completely dependent on my personal and unique skill set.) I've resigned myself to realizing that it is out of my hands. If he decides to sell it, I'm going to deal with it; I know I could convert to a 13, but nothing has changed and adding a huge 13 payment to a bad situation is not going to help. I've done a bit of soul searching and I suppose it's not the end of the world. Even if someone bought the rights to my work, names and titles are not copyrighted, so I can continue to use my own pen name to write more books. As long as they are on sale, they are still authored by me, no matter who holds the rights to the royalties. I'm looking at it as the same deal as if a publisher bought the rights to my stuff, except I'm just not getting any money out of it. It's still me, and I can move forward and write whatever I want. Heck, I can still even write books in my series, as titles cannot be copyrighted, so there is that. Maybe the court will be able to sell my stuff to a huge publisher and get a movie deal or something, haha, wouldn't that be a kick in the arse. (And then my next advice to aspiring authors asking how to land a publishing deal would be: declare chapter 7 bankruptcy and watch the magic happen! Damn, I crack myself up.)

    If anyone is interested, I'll post updates as I get them, just let me know. My luck, the UST will get involved, but whatever. I was transparent, have nothing to hide, and my lawyer reminded me we disclosed everything and that's all we can do.Wish me luck. All I can do now it wait.
    Last edited by boomboom; 03-05-2018, 03:52 PM.

  • #2
    Please do post updates.

    I’m including my books but they are a non-performing asset as I haven’t been able to update and market them.

    Did you try to exempt whatever percent your state allows of their net income as wages?

    Did you show them a profit and loss statement?

    Did your lawyer explain first right of refusal on bidding for thhe assets? And that you could raise your bid if someone else bids?

    Finally, you can always release a minimum 10% new content updated edition which will make the previous edition worthless. Talk to your lawyer on how long to wait after bankruptcy before release.


    • #3
      Originally posted by Maria80386 View Post
      Please do post updates.

      I’m including my books but they are a non-performing asset as I haven’t been able to update and market them.

      Did you try to exempt whatever percent your state allows of their net income as wages?

      Did you show them a profit and loss statement?

      Did your lawyer explain first right of refusal on bidding for thhe assets? And that you could raise your bid if someone else bids?

      Finally, you can always release a minimum 10% new content updated edition which will make the previous edition worthless. Talk to your lawyer on how long to wait after bankruptcy before release.
      I think once my lawyer talks to the trustee, we'll have a better idea on where we're at. We did discuss exempting as wages, and I did put in a detailed P&L. We did not discuss bidding, so thank you for mentioning that, I'm gonna look that up and talk to my lawyer about it for sure. And I think I love you now bahaha, it didn't even occur to me to release with updated content...that is an excellent point. I could easily do 10% differentiated content.

      I justed heaved a massive sigh of relief. I can't even explain the stress over knowing I could lose control of the brand I've spent years building. But at least there is hope. I have plenty of more books in me, ready to get down on paper. I will survive, and I know this is the best choice. I'll still be <<insert my pen name here>> and no one can take that away from me.


      • #4
        Also, the court can not force you to publish anything or take unpublished works. Once they are published, the court might have a claim on the pre-bankruptcy portion, but how do they prove that?


        • #5
          Originally posted by Maria80386 View Post
          Also, the court can not force you to publish anything or take unpublished works. Once they are published, the court might have a claim on the pre-bankruptcy portion, but how do they prove that?
          Yes, that's a good point as well. Definitely will need to discuss that with my attorney since I have one new book that I am planning to release this month.

          So I did some more research about how to make a valuation of this asset, and it's pretty tough to come up with a number. It's obviously valuable to me, but do I think another person would be able to generate the same income stream from it? No, I doubt it. To value it, I have to consider everything that contributes to making these books sell, so I'll detail it below to flesh it out.

          A few things make it dependant on my personal skills. Book covers: I design and create my own covers using stock photos. Stock photos are licensed for the use of the purchaser and are non-transferrable. So every book would need a new cover in order to be re-published by a potential buyer. Books covers of the quality that I currently have cost anywhere from $200 to $500 and up, depending on if it is a cover for an ebook or print book. The utilization of my personal skills in designing, typesetting, and graphic design are part of the asset than are difficult to place a value on.

          Also, each book would need to be reformatted for resale for both ebook and print, generally $50-150++ per book according to length. I do my own covers and formatting, so the estimates are the industry norms for having it done by a professional; most authors are not capable of creating covers or formatting books. I am skilled with graphic design and formatting, so I save myself money that way. The majority of authors pay for each of these services, in addition to editing and advertising. Professional editing costs anywhere from $1000-5000 per book, depending on length. Advertising is another expense, variable on what methods used (Facebook Ads, Bookbub Ads, other promotional services, etc), so that is another factor.

          So in order for the asset to continue generating income, it will require a substantial amount of money invested before they could start selling the books. 12 books would require $3000- $7800 in covers and formatting before they could be listed for sale. Professional editing would be additional per book. Advertising is variable and additional. Considering that the income stream we are talking about varies from $800/month to $2000/month, I am wondering how that factors in to making a valuation of the asset.

          Also, another author friend brought up an interesting point. She suggested that if the worst happens and the trustee decides to sell the books, I could contact the buyer and try to work out a royalty-sharing deal. The fact is that if I stop writing in the series and announce that I no longer own the rights to it, sales will quickly become non-existant. New readers will not start reading a series they know will never be finished, and fans of the series will be pissed. Even a ghost writer would piss off readers, in my experience; readers expect a specific style when they have become super-fans of an author. If I stop writing new books in that series, (which would happen if the asset is sold) the value of the asset becomes zero. It appears that I would have leverage in working out a shared royalty deal for the sold asset, contingent on me finishing the series. Or, alternatively, I could just chuck it and move on, using my same pen name. (Just to reiterate, names cannot be copyrighted. I could write books using the name Stephen King if I wanted, which, actually, a dude does, even though the famous Stephen King is not too happy about it as I recall him posting about last year.)

          I talked to my lawyer again later in the day and I feel a little better. It's out of my hands at this point.


          • #6
            UPDATE: (sorta!)
            Well, the 30 day deadline has passed for an objection to my exemptions (or motion to extend time). PACER has no updates and my lawyer confirmed he has not received anything either.
            I did discuss earlier with my attorney and he explained that the focus for the trustee when questioning the value of the exemption is to figure out how much he could sell it for and/or if it was worth selling. The value of the income the asset generates is one part of the valuation, but the trustee is focused on how much he can outright sell the asset for. It seems the income the asset generates isn't really viable to the trustee, as they cannot hold onto it indefinitely to gather income, they have to either sell it or abandon it in order to expedite closing of the case and facilitate the debtor's "fresh start". So the income is part of the value, and anyone placing a value on it has to consider if a buyer could step in and generate the same income from that asset without me (and my personal skills and services) involved with the asset. My lawyer seems to think that the IP has no value to anyone but me; he said it's not like I'm Stephen King. Anyone could buy rights to something like that and make it produce income; my stuff, being that I'm just a little fish in the sea, probably not so much.

            I've been moving on and focusing on the fact that anything I create after the filing date belongs to me. There's not much else I can do. I am somewhat relieved that there has been no filing of objection to the exemption and so far no motion to extend the time to investigate the exemptions, which I understand had to be filed by the 30 day deadline. I will feel a lot better when/if the trustee makes a report of no distribution. Right now my 341 is still listed as pending and there is no other info on the docket except my credit counseling. Now I'm in the waiting game for the 60 day deadline to discharge.

            Thanks for the support. It's been a long road trying to get my life back together and support myself. I am very much looking forward to closure with this, however it turns out. Fortunately, I have a lot of books in my head waiting to get out, so there is that. ;)
            Last edited by boomboom; 04-08-2018, 09:40 AM.


            • #7
              Crossing my fingers for you.


              • #8
                Update: The 60 day deadline has passed (last week). PACER is completely silent; there was no motion to extend the deadline to object to my exemptions, nor an objection to my listed exemptions filed. From what I understand, the 60-day deadline essentially serves as a default in that my exemptions are safe, as well as the last day for objections to my C7 itself. So now it appears I am just waiting for my discharge order.

                I've put in email to my attorney to confirm before I will truly believe that I can move on with my fresh start, but I'm feeling pretty good about it. It's been beyond stressful wondering if I was going to lose the rights to my books. I was prepared for it and willing to accept it if it happened. However, I am glad I stuck to my decision to do a Chapter 7 rather than risk a Chapter 13 that I knew I could not afford. I still would rather lose IP rights to my books than fail a Chapter 13 plan.

                I am very much looking forward to moving on with life and building a career without the weight of my past hanging over my head. This makes me feel like I am finally free of my abusive ex husband and can truly put that behind me so I can make a great future for my daughter and myself.

                Thank you so much for answering my questions and the support. This board has been a lifesaver throughout this very scary and demeaning process.


                • #9
                  The deadline to object to exemptions was 30 days after the conclusion of your 341. It sounds like you are in the clear. Congratulations!
                  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!


                  • #10
                    Thank you I've been on eggshells because I read about a case where the trustee never formally ended the 341 and then filed objections to the exemptions on day 59; the argument was that the 30 day window for objection to exemptions starts when the 341 meeting is concluded, and if the trustee does not enter a "meeting concluded" motion the 30 days never started.
                    There has been nothing posted in my case at all, not a word. But passing the 60 day deadline is pretty huge for my situation.
                    Thanks so much for your input & support during this crazy stressful time.


                    • #11
                      Glad it worked out well for you. I have two self-published books and my website that I had to include on my Ch 7 petition last year, but the trustee had no interest in them and never even asked about them during the 341 meeting. I generally make less than $100 a year on the books and consider it hobby income when I file my income taxes each year... A trustee isn't going to fuss with something like that. Like you said, we're not Stephen King.


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