The Artist, Deposits, and Covid-19

Bona Fide Bankruptcy Attorneys, PLLC - The Artist, Deposit Disputes, and Covid-19

Does an event planner, caterer, DJ, officiant, musician, or other artist have to return a deposit from an event canceled because of Covid-19?

That depends on the terms and conditions under which the deposit was paid, and if the artist files for bankruptcy.

Most people in the art and entertainment industry are paid through executory contracts, which are treated differently from regular contracts under both contract law and bankruptcy law.

An executory contract is a contract for a future performance.

A deposit in an executory contract can be used in these ways:

  • exclusively to secure the artist’s reservation and not just the artist’s performance; or
  • to secure the artist’s performance; or
  • for the purpose of securing goods or leases necessary for the full performance of the contract.

Executory contracts are typically structured in one of three ways:

  1. Booked well in advance with the performance secured by 100% of the contracted rate at the time of booking, (for example, a guitarist who requests to be paid in full at time of booking to reserve the time and date of the performance.
  2. Booked well in advance with the performance secured by a % deposit (typically 50%) of the full contracted rate, and the remainder due over a period of time, or at the event, (for example, a caterer who requires 50% down to purchase food with the rest due on the day of the event).
  3. Booked well in advance with 100% of the full contracted rate due at the event, (for example, an officiant who asks to be paid in full on the day of the wedding).

 

In the first example, the guitarist can argue the deposit was earned at the time of the booking because the purpose of the deposit was to secure the guitarist’s reservation and not just the guitarist’s performance.

In the second example, the caterer can argue the deposit was spent purchasing food, which has now spoiled, and therefore the deposit cannot be returned.

In either case, the artist may not be in a position to refund the deposit.

If the client sues the artist for the return of the deposit, then all the other issues associated with the underlying contract become involved, including how the contract was formed, terms and conditions of the contract, and the reason why the artist was unable to perform (or force majeure clauses), etc.

Some upset clients will argue that the artist still owes them a future performance, even in the Coronavirus pandemic, and the performance should not be voided just because it will be more difficult, more expensive, or less profitable.

Note that Arizona has a six (6) year statute of limitations for executory contract disputes.

The Artist and Bankruptcy

If the artist files for bankruptcy, then the amount of the deposit and how it was earned will often determine if it will be considered the artist’s income for purposes of the “means test.”

For example, the guitarist who received a 100% deposit may have all of the deposit money deemed “income” if it is not refunded.  This may depend on the size of the deposit(s) collected and the six (6) month look-back period regarding Chapter 7 eligibility.

The caterer, on the other hand, may be in a better position to argue or attest that the deposit was not income but rather a deposit for food to be prepared.   In that scenario the deposit would likely not be considered income for purposes of the “means test.”

The Artist and Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy all contracts are generally voided and an automatic stay is put into place. An automatic stay means that the person who filed (i.e., the artist) can’t be sued while the bankruptcy is pending.

Assuming the artist didn’t commit fraud, the client will most likely be out of luck in getting any money back.

The artist will not be further obligated to perform services.  However, if after filing the bankruptcy the artist wishes to fulfill their obligations under a contract (e.g. to maintain their reputation in the community) they are free to do so.

The Artist and Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy all contracts are generally voided.  However, the artist and the bankruptcy trustee will evaluate the ongoing obligations of the artist and potentially “re-affirm” the contracts.

This can be done if the artist’s performance benefits their creditors or the bankruptcy estate, and if the artist consents to the performance. No one can be forced into indentured servitude or compelled to provide services they do not wish to perform.

When the Chapter 13 route toward debt relief is selected, it is assumed that the artist will work and generate income.  Therefore, the income associated with the artist’s performance of previous contracts will probably be a part of the artist’s bankruptcy plan to emerge with a complete discharge. A complete discharge of debts is the goal in any bankruptcy proceeding.

These types of executory contract disputes are fact-driven, and any artist, entertainer, or small business owner should contact Bona Fide Bankruptcy Attorneys, P.L.L.C, for their FREE Consultation if they are facing financial hardship.

Bona Fide Bankruptcy Attorney’s P.L.L.C, will give artists, entertainers, and small business owners the legal information they need to make the best financial decisions for their unique situations during these complicated times.

Please call us at (480) 477-3208 or fill out our contact form.

We are licensed in Arizona and practice law in Maricopa County and Pinal County. Our law firm is located Tempe, AZ.

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*Our firm practices bankruptcy law and is considered a debt relief agency by federal law. We help people file for bankruptcy relief under the Bankruptcy Code.

**Disclaimer: This article provides general information and should not be taken as legal advice.  Answers to questions or comments do not form an attorney-client relationship.

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*Our firm practices bankruptcy law and is considered a debt relief agency by federal law. We help people file for bankruptcy relief under the Bankruptcy Code.

*The information on this website is general in nature and should not be taken as legal advice. Use of this website does not create an attorney-client relationship. All attorney fees and court costs must be paid before filing.