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Bankruptcy Law/What to do when a business partner declares bankruptcy

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Expert: - 7/5/2007


Question
I have a business partner (he and his wife own 51% of our business) who may have to declare personal bankruptcy. I don't even know if they would qualify since their share of the business is probably worth over $200,000 and I don't believe they have that much debt. We have made them an offer to buy them out for $175,000, but they won't sell and I'm not comfortable going much higher. The business is very profitable now, and indications are that it will become even more so over the next few years. If they do end up filing, how will that affect my minority ownership in the business? We are both working partners. Would I be able to purchase their share of the business through bankruptcy court? Or could I end up with a partner who I don't even know?

Answer
I am sorry to hear about this. The outcome will depend largely on what kind of bankruptcy they file. If they go into Chapter 7, (liquidation) it may cause the bankruptcy trustee to sell the debtor's interest in the business. You may be able to buy it, perhaps for less than you already offered. If this is a true partnership, (as opposed to a corporation) the bankruptcy of one general partner terminates the partnership. If you are going to continue to work together, you may need to form a new partnership.

Either way, since you know this is coming, you yourself would be well advised to retain a good local bankruptcy attorney immediately, so that you can get up to speed and be ready for any eventuality.

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Los Angeles Bankruptcy Lawyer Leon D. Bayer

Expertise

Leon Bayer has successfully represented clients in bankruptcy for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. 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/ Leon also writes about bankruptcy law for Nolo, see http://www.nolo.com/law-authors/leon-bayer.html and his "Ask Leon" bankruptcy law blog column at http://blog.nolo.com/bankruptcy/

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.


Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases thropughout my career.

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