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San Diego-based MP3tunes files for Chapter 7 bankruptcy

A San Diego-based company, MP3tunes, filed for Chapter 7 bankruptcy recently in the Southern District of California federal court.

A number of our previous posts have focused on Chapter 7 bankruptcy filings, but they have mainly focused on personal bankruptcy. The filing by MP3tunes illustrates that this particular process is also open to businesses in need of addressing unmanageable debt.

MP3tunes was founded in 2005 during the height of the ongoing legal battles between online music providers and record companies. The company had been the subject of several lawsuits since its inception, and it appears those lawsuits have taken a toll on the viability of MP3tunes.

By filing for protection under Chapter 7, the company is looking toward liquidating its assets to pay off creditors. However, in the bankruptcy filing, MP3tunes listed only $7,800 in assets, while listing approximately $2.1 million in liabilities.

The founder of the company is still a defendant as an individual in at least one lawsuit concerning the legality of posting music to online service providers. Lawsuits against companies like MP3tunes were common for a number of years as recording labels struggled to adapt to the technology that allowed people to upload digital versions of their favorite songs to cloud-based services, where listeners could then access the music anywhere they could get an internet connection.

Filing for Chapter 7 bankruptcy can be complicated, and a company in a situation such as the one faced by MP3tunes may find it difficult to look at Chapter 7 as an option. However, when a company does not have the choice to go through a structured bankruptcy resurgence by means of a Chapter 11 filing, Chapter 7 can be the best course of action available.

Source: Reuters, "Online music storage firm MP3tunes files for bankruptcy," May 11, 2012

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