Bankruptcy and Publishing

With all the talk of small publishers, and possibly a few bigger publishers, filing for bankruptcy, I see a lot of misinformation traveling around the writer blogosphere. If your publisher has filed for bankruptcy, or is facing the possibility of filing, this is a time when a writer really, truly needs expert help in the form of a bankruptcy attorney.

Many contracts with American publishers have a clause in them, saying that in the event that the publisher files for, or is forced into, bankruptcy, all rights revert back to the writer. For all intents and purposes, this clause IS ABSOLUTELY MEANINGLESS!

Why? In the American legal system, contracts are governed by state law. In fact, there's usually another clause in the contract specifying which state's law is the deciding factor. (And it's almost always the publishers' home state.) Bankruptcy law is federal law. And the American system, federal law almost always trumps state law.

What does this mean? It means if your publisher files for bankruptcy, the rights he bought from you become part of the bankruptcy estate and can be sold to satisfy the publisher's debts. Not only that, but if your publisher owes you royalties, those royalties are an unsecured debt which put you the writer near the bottom of the list of people to get paid by the bankruptcy trustee. This isn't anything personal on the part of the trustee. The law ranks creditors in a certain order.

If you think your publisher is in trouble (such as the poor folks who sold rights to Ellora's Cave), you need to talk to an attorney who specializes in bankruptcy NOW. If you wait, you may never see your precious books again.