Download Do Royalties Become Part of the Bankruptcy Estate? When a person

Do Royalties Become Part of the Bankruptcy Estate?
When a person files for a Chapter 7 bankruptcy, certain types of property/assets are not protected and
therefore the trustee can sell the property to pay your creditors. The typical forms of property include
excess cash in accounts, tax refunds, additional cars that hold equity, etc. People often wonder whether
their wages in the form of royalties will also have to be included in the bankruptcy estate.
A person may receive royalties when he or she signs a movie deal, book deal or other business deal. A
royalties agreement is usually fixed through an executory contract. An executory contract is fulfilled
when a person performs his or her end of the deal in order to receive goods in exchange for the
performance of this promise. In the case of an author, he or she would likely have an executory contract
with a book publisher. This would mean that the author would receive funds from the book publisher
upon finishing his or her book. The book publisher would pay him or her royalties as soon as the book
reached its completion. Upon the completion of the book, the author's right to royalties "vest" in the
executory contract.
When a person files for a Chapter 7 bankruptcy, he or she will not have to include royalties received
from an executory contract in the bankruptcy estate. This is because the trustee is unable to do the
personal services that are required to fulfill an executory contract. The trustee is also not able to force
the debtor to do the services that are required to fulfill the executory contract. Because of this rule in
bankruptcy proceedings, debtors are able to keep any of the royalties that they receive from executory
contracts that are entered into prior to the filing of the bankruptcy petition.
The reason that a debtor's interests in an executory contract are protected is due to §362(a) in the
Bankruptcy Code. In §362(a), debtors are granted an automatic stay immediately upon filing the
bankruptcy petition. As soon as the automatic stay is put into effect in the bankruptcy proceedings, no
one can interfere with the client's interests in the executory contract. This would mean that creditors
would be unable to attempt to recover any royalties that an author received from an executory
contract. The trustee will have the ultimate power to accept or reject the executory contract. While the
trustee does have this power, he or she can not force the debtor to perform his or her services under
the contract.
If you are dealing with an issue relating to an executory contract in your bankruptcy case, then you
should consult an attorney. A bankruptcy lawyer will be able to come up with solutions for handling the
executory contract in your bankruptcy case. The bankruptcy lawyer may find that it is to your ultimate
benefit not to perform the executory contract in order to keep assets from the hands of creditors. In
other cases, a bankruptcy lawyer may see that you are fully protected even if the executory contract is
carried out to its full terms.