Should debtors be required to turn over control their social media accounts at the request of a trustee? Section 521 of the Bankruptcy Code states, “(a) [t]he debtor shall…(4) surrender to the trustee all property of the estate and any recorded information, including books, documents, records and papers, relating to property of the bankruptcy estate….” What if a trustee finds evidence of concealed property on a debtor’s public Facebook posts, or sees photos of a recent extravagant vacation? I have heard anecdotal stories of trustees requesting Facebook passwords at §341 meetings. Are social media accounts “property”, or “recorded information relating to property of the estate?” New technology raises new legal issues. Some of these issues are making their way into bankruptcy court and the trend will likely escalate.
In a case of first impression, a bankruptcy court in Texas addressed the issue of whether Facebook and Twitter accounts were property of a Chapter 11 debtor’s bankruptcy estate. See, In re CTLI, LLC, Case No. 14-33564, United States Bankruptcy Court for the Southern District of Texas, Houston Division, Dkt#334, April 3, 2015. The debtor, CTLI, LLC, operated a gun store and shooting range. A dispute arose between the majority and minority owners of the business and a bankruptcy was filed by the majority equity owner to thwart a state court receivership proceeding. A plan of reorganization was confirmed which resulted in the minority owner becoming the 100% owner of the reorganized debtor. The former majority owner refused to turn over the company’s Facebook and Twitter accounts. He asserted that the accounts were personal and were not property of the bankruptcy estate.
The bankruptcy court ruled that social media accounts for a business fall within the Bankruptcy Code’s broad definition of “property of the bankruptcy estate.” The court made a factual determination that the Facebook and Twitter accounts were “business accounts” and ordered administrative control be turned over to the new equity owner. The court found that the nature of the property right was similar to a business customer list which is generally recognized to be property under Texas law. The opinion distinguished between personal social media accounts and business accounts. Without ruling on the issue, the court suggested that personal social media accounts may involve personal liberty rights rather than property rights, but also acknowledged that in cases involving celebrities, or public figures, distinguishing between personal and business accounts may be difficult.
Whether a social media account is considered personal or business related, a trustee may be entitled to administrative access to social medial sites under Section 521. I am not aware of any reported opinions that address the issue. I have found Facebook to have limited value as an investigative tool. On a couple of instances I thought I had “busted” debtors with public posts about boats and vacations homes, only to find out later that they did not actually own the property they bragged about. Imagine that.