Intellectual property transfers can lead to bankruptcy fraud

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Many small businesses and independent contractors have obtained either common law or Federally registered copyright and trademark protection on creative works, web sites and domain names. The intellectual property has the potential to become an extremely valuable business or personal asset. Yet in today’s digital age, so many start-ups and contractors simply do not have the financial viability to sustain their small business. These people often end up filing for chapter 7 bankruptcy. Chapter 7 bankruptcy is a liquidation of all assets that a individual, married couple or business owns, in an attempt to satisfy the debts owed to secured and unsecured creditors. Many businesses and contractors want to try and save their intellectual property rights by transferring those rights to family members, so that they can try again to generate profits in a business setting. This practice begs the question; can you transfer intellectual property rights to a family member to avoid loosing the asset in a bankruptcy? Recently a bankruptcy court in the First Circuit heard a case where a Chapter 7 trustee had moved to avoid a pre-petition transfer of property from the debtor to the debtor’s daughter. The bankruptcy court’s decision finding the transfer voidable was affirmed in light of the fact that the property in question was not recorded until after the filing of the bankruptcy petition. In Re: Garrido Jimenez, Freddy V. Appealed from the U.S. Bankruptcy Court for the District of Puerto Rico (Docket No. PR 06-044) (June 19, 2007).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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