Articles Posted in Celebrity Bankruptcy

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When considering whether to file for bankruptcy, most people worry about losing their home, their car, or other familiar assets. Creative works, such as music, films, and literary works are also considered assets, in the category of intellectual property. This type of asset may be especially common in cities with a strong entertainment industry, such as New York and Los Angeles. Bankruptcy law treats music and similar creative works subject to copyright protection as assets, although not all copyrights have value that would be of interest to a trustee liquidating a bankruptcy estate. The laws governing intellectual property are about as complicated as the laws of bankruptcy. A Chapter 7 bankruptcy may, on occasion, result in the debtor’s loss of rights to their music, when those rights include the right to royalty payments.

Copyright law protects the rights of authors to their own creative works, such as music, art, photographs, literary works, films and videos, and software code. Copyrights should not be confused with trademarks, which generally apply to brand names and logos, or patents, which protect inventions. An author of a creative work can register the work with the U.S. Copyright Office, but they may also have common law copyright protection. Copyright law protects the right of the copyright owner to reproduce, exhibit, or display their work; to create derivative works based on the original work; and, perhaps most importantly, to exploit and otherwise profit from the work.

Since music is an art form that is heard rather than seen, many of the rights to a musical work relate to the right to physically record and reproduce the music. The owner of a copyright may therefore grant various licenses, such as a mechanical license to record music onto a CD, a digital license to sell or transmit recordings online, and a license that allows a consumer’s personal use of a recording. In exchange, the copyright owner receives royalty payments. A musical copyright is an asset in the context of a bankruptcy case, and royalties are income. Most of the world’s songs achieve little to no fame, but those that do have the potential to generate significant royalty income. This gives the copyrights themselves considerable value, especially in a bankruptcy liquidation. Continue reading

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A couple made famous by reality television is facing multiple criminal charges by the U.S. Department of Justice (DOJ), including allegations of fraud during a Chapter 7 bankruptcy proceeding several years ago. United States v. Giudice, No. 2:13-cr-00495, indictment (D.N.J., Jul. 29, 2013) (the “Indictment”). The defendants, Teresa Giudice and Giuseppe “Joe” Giudice, star on the Bravo reality program “The Real Housewives of New Jersey.” The indictment against them alleges that they failed to disclose assets and made various false statements during the course of a bankruptcy case filed in 2009. Despite the fact that the bankruptcy did not result in a discharge of debt, the DOJ is seeking to hold the couple criminally liable for the alleged fraud. This underscores the importance of disclosing all assets when seeking bankruptcy protection.

The defendants filed a voluntary Chapter 7 petition in 2009. In re Giudice, No. 09-39032, petition (Bankr. D.N.J., Oct. 29, 2009). As debtors, they initially identified real and personal property worth over $2.2 million, and listed debts of more than $6.1 million. They filed amended documents three times between December 2009 and March 2010, and they each gave testimony under oath on several occasions between December 2009 and June 2011. Indictment at 14. In 2011, both defendants entered into agreements with the United States Trustee to deny a bankruptcy discharge, and the court approved consent orders based on these agreements. Id. at 14-15. The bankruptcy court closed the case in January 2012.

Federal criminal law prohibits false statements, concealment of assets, and other fraudulent acts in bankruptcy cases, when a debtor engages in such conduct knowingly. 18 U.S.C. § 152. This includes hiding assets from the trustee or creditors, false oaths or accounts relating to the bankruptcy estate, and other other false statements during the course of a bankruptcy proceeding. An offense can result in up to five years imprisonment and a fine. 18 U.S.C. § 157.

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A New York City restaurateur recently filed a personal Chapter 7 bankruptcy petition, citing overexpansion of his restaurant business in a bad economy. In re Denton, No. 13-bk-12799, vol. petition (Bankr. S.D.N.Y., Aug. 27, 2013). The petition identifies over $1 million in debt and few assets. His three restaurants are currently not part of the bankruptcy case, as they are reportedly held by one or more limited liability companies (LLCs) of which he may not be the sole owner. The bankruptcy proceeding may affect his ownership interest in the restaurants, but should not affect the operation of the restaurants themselves. In most personal bankruptcy cases, the trustee has authority over a debtor’s shares or other ownership interests in a business, but may not have authority over the business itself. This can help keep one owner’s personal bankruptcy from having too much of an adverse effect on a business.

Jason Denton reportedly operates three restaurants in Manhattan, ‘Inoteca Cucina, Catina Corsino Italina, and Indie Food and Wine. He closed at least two other New York City restaurants in the past year. He is a partial owner of the company that reportedly owns the three remaining restaurants, as well as an events company that he manages. His ownership interests in these companies — not the restaurants themselves — are assets in the bankruptcy case.

In his Chapter 7 bankruptcy petition, the debtor identifies about $29,500 in assets and more than $1.37 million in debt. Id. at 4. His debts include credit card and other personal debts, as well as debts directly related to the operation of restaurants that are no longer in business. He identifies more than $100,000 in debt to multiple creditors, for example, from personal guaranties of trade debt or leases for the restaurants Bar Milano, Betto, and Ina. Id. at 14-19. Other business-related personal guaranties and personal income tax debt make up a large portion of the remainder of the debt claimed in the petition. Continue reading

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The trustee has filed a proposed Chapter 11 bankruptcy plan in the case of Lou Pearlman, a music mogul currently serving a prison sentence for various fraud offenses. In re Pearlman, No. 6:07-bk-00761, Chapter 11 trustee’s plan (Bankr. M.D. Fla., Jun. 12, 2013). Investors and creditors, whose allowed claims exceed a quarter of a billion dollars, have already voiced objections to the plan. One of the musical groups Pearlman created, the Backstreet Boys, says that the plan does not adequately compensate them for losses they suffered due to alleged criminal activities by Pearlman. The trustee has stated that Pearlman often mixed his fraudulent activities with his other business affairs, making the bankruptcy estate particularly difficult to manage.

Pearlman is primarily known as the creator of “boy bands” like the Backstreet Boys in the 1990s He also created the group N’Sync and several others. His legal troubles began in 2007, when state officials in Florida seized two businesses that he operated under the name “TransContinental” in Orlando. They alleged that the companies existed only on paper, and that Pearlman was operating a Ponzi scheme to cheat investors by selling stock in those companies. The scheme included a fake accounting firm that generated fake financial statements to show to investors, and ultimately cost investors, over $300 million. He fled the country in January 2007, and was arrested in Bali, Indonesia that June. He pleaded guilty to charges including conspiracy and money laundering in March 2009, and is currently serving a twenty-five-year prison sentence. Continue reading

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Among famous and wealthy businesspeople in the United States, Donald Trump stands out for having had particularly great influence on American culture. With a series of real estate ventures, several television series, numerous books, and no small amount of public controversy, Trump is often considered a major success story. He has also sought bankruptcy protection for his businesses four times. While his experience with bankruptcy is far from typical for most Americans, it offers some examples of how others may be able to protect their interests through a bankruptcy filing.

Corporate, Not Personal, Chapter 11

The key to understanding Trump’s bankruptcy experience is that he filed for Chapter 11 bankruptcy protection for his business interests. While he had considerable personal debt tied up in his first bankruptcy, he was generally able to protect his personal assets by keeping them separate from his business activities. Chapter 11 bankruptcy allows an individual or business to reorganize debts. It is most commonly used by corporations seeking to restructure debts without going out of business, as they might have to do in a Chapter 7 liquidation if their business has significant assets beyond that which the law allows one to protect and keep in a Chapter 7. Trump has stated that he prefers not to use the word “bankruptcy,” describing his Chapter 11 filings as prudent business decisions. Continue reading

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Federal tax debt is a significant factor for many individuals filing for bankruptcy protection. Celebrities like Willie Nelson have experienced widely-publicized difficulties due to taxes owed to the Internal Revenue Service (IRS). Unlike many types of debts, bankruptcy generally can only wipe out an individuals federal tax debt if certain legal requirements are satisfied. An individual that wishes to discharge his or her tax debts through Chapter 7 or Chapter 13 bankruptcy must initially review those tax debts to determine how much, if any, would be dischargeable in bankruptcy.

Federal Tax Debt

Unpaid taxes may accrue unintentionally, as in one of the most famous cases of substantial tax debt, country singer Willie Nelson. Nelson had invested heavily in a tax shelter in the early 1980’s that the IRS disallowed as a deduction. This led to an assessment by the IRS of $6 million in unpaid taxes over a period of six years, from 1984 to 1990, with an additional $10 million in accrued interest.

Federal agents raided Nelson’s residence in November 1990 and seized most of his property, although he was able to keep his guitar. Instead of bankruptcy, he reached an agreement with the government that involved the sale of most of his assets and the release of an album. He would split the proceeds of the album, titled “The IRS Tapes: Who’ll Buy My Memories?” with the IRS. The government received $3 from the sale of each $19.95 album, and collected a total of $3.6 million from album sales. It used proceeds from the sale of many of Nelson’s assets to pay part of the debt, and Nelson was able to use money from a settlement with his accountant to pay the remainder of the debt. Unfortunately, most individuals may not have the clout to reach such an agreement with the IRS. Continue reading

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Tough times can affect anyone, even celebrities. Bankruptcy protection allows people to restructure or discharge debts when they do not have the income to support all of their payments. Celebrities and other prominent people have filed for bankruptcy protection throughout American history, and many emerged from bankruptcy and found further success. For some, the lavish celebrity lifestyle led to financial troubles, but for many, the same issues that anyone else might face, including taxes, medical expenses, and ordinary bills, overtook their income. Here are few recent celebrities who have filed for bankruptcy, a few well-known celebrity bankruptcies, and some that might not be so well-known.

Dionne Warwick

The multiple Grammy-winning singer filed for Chapter 7 bankruptcy in New Jersey in March 2013. She listed tax debt owed to the IRS and the state of California totaling more than $10 million. Despite monthly income stated at more than $20,000, she valued her assets at less than $3,000. Tax debt is dischargeable in a Chapter 7 or Chapter 13 bankruptcy, although the debtor must meet a strict set of criteria. The IRS has reportedly intervened in Warwick’s case seeking to seize assets held by companies connected to her, in an attempt to satisfy her debt.

Sinbad

David Adkins, known to most as the comedian Sinbad, filed for Chapter 7 bankruptcy protection in a California court in May 2013, citing over $10 million in debt and about $131,000 in assets. He has had a prolific film and television career, including an eponymous television show in the early 1990’s, but taxes owed to the IRS and California, as well as credit card and other debt, have allegedly exceeded his claimed $16,000 monthly income. Adkins previously filed for bankruptcy in 2009. Continue reading