The Bankruptcy Court May Seize Your Social Media Accounts

Law Blog

For many business owners, social media accounts are important marketing tools that let them reach customers and drive sales. If your company files for bankruptcy, however, those accounts may be seized by the court. Here's a breakdown of the issue to help you make the best decisions for your situation.

Accounts Become Part of the Bankruptcy Estate

When you file bankruptcy in your business, your company's assets become part of the bankruptcy estate. The trustee in your case will use these assets to pay off your creditors. If your business is sold to another party during the proceedings, the assets in the bankruptcy estate typically become property of the new owner.

The court may consider your social media accounts to be company assets if they were used to promote the business and generate sales. This can be problematic for owners who use their accounts for personal and professional communication and/or have built up a strong personal or celebrity brand using their social media accounts.

For instance, a Texas gun store owner had his social media accounts taken when he filed for bankruptcy. Although he used them to post his personal political opinions, the court determined the accounts were business assets because they were used to promote the company and contained business branding. Even though the man changed the name on the accounts from the company's to his name, the court still ruled the accounts belonged to the business.

Is It Possible to Keep the Accounts?

Whether you can prevent a social media account from being seized by the bankruptcy court depends on how closely connected it is to the business. For instance, the court may take an account that is in the business' name, even if you only post personal stuff on it, because the company's name is part of its brand. Likewise, if you have an account in your personal name but you primarily post about business stuff, then the account may be taken because the audience is most likely full of current and potential customers.

One way to keep an account, then, is to show it has very little connection to the business. When determining if a social media account is a business asset, the court looks at several factors:

  • The name on the account (e.g. if the Twitter handle is the business name)
  • Whether the account contains business branding (e.g. description of the business, link to the company website)
  • The nature of the communication on the social media page (e.g. lots of posts about sales or talking to others about services offered)
  • Whether employees can post on the account about the business
  • Type of social media account (e.g. Facebook profile vs. Facebook page)
  • The amount of sales generated through the account

If you can show that most or all these things don't apply to the account in question, then the court may let you keep it. It's important, though, that you don't make significant changes to the account, such as delete posts, before or during the bankruptcy process. The court may view this as an attempt to hide the value or relevancy of the asset.

There may be other ways to keep your social media account out of the bankruptcy estate, such as using the tools of the trade exemption. Contact a bankruptcy law attorney for more information and assistance.


18 April 2016

Every Business Owner Needs to Be Well-versed in Law

While I took a few business classes in college, I left early to start my own business. I thought I had the knowledge I needed to become a great business owner and was eager to start my business. Soon, I had a new business that was actually performing pretty well in sales. Unfortunately, I hadn't taken any law courses in college, and I soon realized I made a few mistakes when starting my business that could cause me some legal trouble. Thankfully, a great business lawyer helped me correct my mistakes before I had any legal problems, but I then decided to take those business law courses. I want to help business owners and anyone else who would like to learn more about the law by starting a blog where I will share what I have learned and will continue to learn. I hope I can help you!