I read with interest an article recently where a judge in Texas ruled that a debtor was required to turn over passwords to a Facebook and Twitter account as part of his business’ bankruptcy. The creditors viewed the accounts as an asset of the bankruptcy; the debtor viewed it as his personal social media accounts.
This begs an interesting question surrounding personal bankruptcy: If I go bankrupt in Ontario, will I lose my Facebook, Twitter, LinkedIn or other social media account? Probably not.
Personal bankruptcy is a conceptually easy to understand process: your assets are sold, and the proceeds are then distributed to your creditors. In exchange, your debts are forgiven.
Of course, in “real life” it’s not that simple. First of all, there are exemptions that allow you to keep certain assets including basic household furniture, personal effects (like clothing), a vehicle valued at less than the allowable exemption limit, RRSPs and tools of the trade, so unless you have some very valuable possessions, you won’t lose them. In fact, the vast majority of people who file personal bankruptcy in Ontario don’t lose any assets because most of what they own fall within the exemption guidelines.
What about a social media account? Is a Twitter or Facebook account an asset in a bankruptcy? Can the trustee seize it?
In theory, yes. If your social media accounts have value, there is no rule that specifically prevents a trustee from seizing those assets.
In real life, the most important consideration is whether or not your social media accounts have any monetary value. Simply put, is anyone else willing to buy them? If all you do is post pictures of your meals on Instagram to your 20 followers, it’s unlikely that anyone would pay anything for that account. It’s an asset, but it has zero value, so your trustee won’t seize it.
But what if you are the chef at a local restaurant and you post pictures of every meal you cook, and you have thousands of followers? That account may have some value. If I was the owner of a competing restaurant I may be willing to pay something to buy that account.
Or not. If the competing restaurant purchased that Instagram account, the chef would no longer post to that account. He would start a new one, which he can start for free, and it wouldn’t take long for his followers to find him at his new account.
But what about a small business owner who tweets about his company’s products, services, sales and other events to a wide audience of customers? Is that account a personal or business asset?
Social media accounts have what business valuators call “low barriers to entry”. Anyone can register a Twitter, Facebook or Instagram account for free. It’s not difficult, and that low barrier to entry reduces the potential value of the account.
It could also be argued that the Twitter account you use to promote your business is a “tool of the trade”, so perhaps it is exempt. I say “perhaps” because no-one has ever gone to court to argue over the value of a social media account in a personal bankruptcy in Canada, so this is merely speculation at this point. In fact, perhaps a social media account is a personal asset, and therefore, is covered by the exemption for personal belongings. Again, this theory has never been tested in court, so this is all speculation.
In addition to being a licensed bankruptcy trustee, I am also a chartered business valuator, so I know that another concept business valuators use is “personal goodwill”. A Twitter account has value because of the person. People follow Justin Bieber because they want to see what he’s tweeting (I have no idea why, but that’s how it works). If Mr. Bieber’s account is taken over by someone else, its value dramatically plummets. Without the person, there is no personal goodwill.
And that’s why, if you go bankrupt, it is highly unlikely that your trustee will attempt to seize your Twitter, Facebook or Instagram account. Your account is based on you, so without you the account would have minimal value.
Social media evolves very quickly. It is likely that a year or two from now other forms of social media will be invented, and they may have transferable value. At the moment, this value appears to only exist for businesses, not people. There are court cases in the United States where a Twitter account used for business becomes an asset of the company, and it can be sold in a bankruptcy. This is somewhat analogous to a website domain name owned by a business. If the domain name has value, it would be an asset in a bankruptcy. If the Twitter account is a source of business, it may also have value to the business.
So, if you use your social media account for business, and the business is sold, your account may go with the business. However, if you are a person, using your accounts for personal use only, it is unlikely that your social media accounts will have any value in a personal bankruptcy.