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All I have to give: Backstreet Boys reach settlement in creator’s bankruptcy case

Florida readers who pay attention to celebrity news may have heard that the Backstreet Boys recently reached a settlement in the ongoing bankruptcy case of the band’s creator, Lou Pearlman, who was found guilty of laundering money from bands he helped create. Pearlman’s bankruptcy case has been going on for some time, having been filed before his arrest.

The Backstreet Boys, as well as singer Aaron Carter and other bands, claimed that Pearlman and his company, Trans Continental Records, had pocketed their earnings. In the case of the Backstreet Boys, the pocketing was alleged to have amounted to $3.5 million. The band’s claim, however, was challenged by Pearlman’s bankruptcy trustee last year since the band apparently failed to provide enough evidence to support their claim. 

For better and for worse, a settlement has been reached in the case, with the Backstreet Boys set to receive only a fraction of their original claim. The settlement includes a total of $99,000 as well as various recordings of their own music. In this case, the court ruled that unsecured creditors like the Backstreet Boys would receive roughly four cents on the dollar.

Why exactly was the claim payback so low in this case? Without knowing the exact details of the case, it is impossible to know exactly why, but it is quite common in bankruptcy for creditors to receive less than the full amount they’re owed.

Some of it depends on whether or not a creditor’s claim is defined as secured or unsecured—priority is given to secured debts in bankruptcy proceedings. While it is unfortunate the band didn’t get more out of the deal in this case, they did at least receive something back. When it comes to bankruptcy and repayment of creditors, something is surely better than nothing.  

Source: Wall Street Journal, “Backstreet Boys Settle Bankruptcy Claims,” Jacqueline Palank, Oct. 23, 2014. 

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