Expert: Los Angeles Bankruptcy Lawyer Leon D. Bayer - 5/6/2010

Question
QUESTION: I am filing personal bankruptcy but I have a partnership business with a friend. I am wondering whether I have to count all of the income from the partnership business or can I count only half because its a partnership. We generally don't divide any income that we get from the business we just put it into a business bank account. Do I even haven to count this income also since the partnership business isn't protected and my understanding is that the trustee will liquidate this business. If I count the income I more than likely wont qualify for ch. 7 bankruptcy which makes no sense since the trustee will probably sell of this business and I wont have the income anymore.

ANSWER: The income received by the partnership, (after payment of legitimate expenses)is counted as the income of the partners, whether you draw it or not, or even if you leave it in the parnership account.

I think you would benefit a great deal if you would consult with a local bankruptcy lawyer right away for guidance. A lawyer meeting with you in person should be able to determine if you are going to lose any assets, and determine if you are eligible to file. Partnership debts should be listed in your bankruptcy, however the partnership assets may remain lliable for paying all partnership debts, and your partner will also be personally liable for all partnership debts.

I hope things work out and get cleared up for you real quickly.




---------- FOLLOW-UP ----------

QUESTION: Can you count as an expense attorneys fees you had been paying for to defend a lawsuit of the partnership that will now be included in the bankruptcy. From what you are saying it sounds like I need to count all the income from the partnership and not just half.

Answer
I think the attorney fee expense, if paid by the partnership, is a deductible expense to the extent of what the partnership actually paid. If it was paid by you personally, I think it is not deductible. Talk to a good accountant, who might decide that it can be treated as a contribution of capital to the corporation if you personally paid it, thus increasing your personal capital account in the business.

You are required to claim one-half of the net partnership income, and the partnership is required to file a tax return and issue a K-1 to each partner. Undistributed income left in the account at the end of the partnership tax year is taxable. If that same income is subsequently distributed to you, then it gets taxed again!

I will say it again: I think you would benefit a great deal if you would consult with a local bankruptcy lawyer right away for guidance. I also think you need the guidance of a good CPA. It sounds to me like you are dangerously close to trying to file your own bankruptcy. Please, don't do that. Get expert help. Your case is definitely not a "do-it-yourselfer." Even trivial mistakes can have major adverse consequences.

Good luck to you.

If you or other readers want to keep up with my blog postings about life in and out of bankruptcy, you can follow my blog at http://www.bankruptcyblogger.org/ and my personal web site at http://www.debt-relief-bankruptcy.com  and A Human Guide to Bankruptcy at http://www.thebankruptcyguide.net/