Filing soon...questions about keeping partnership going, debts,etc.

[miindebt]

A few questions - we're getting ready to file Ch 7 in MI by the end of the month. We're self employed (our only income) and are the only members of our partnership. Our attorney said that all debts that were guaranteed by us, even if they were under the partnership tax id#, are dischargeable. But today, I received a call from Wells Fargo who is our largest unsecured creditor and she was asking me if the business was going to close (I didn't tell her anything). She went on to say that if it didn't, they'd come after the partnership for the amount owed. I was obviously under the impression that this debt would be discharged!? We're meeting our attorney next week to go over final paperwork, and I'll ask him about this, but wanted some of your opinions about this first.

If we do need to change our business (we've been thinking about an LLC anyway), can we just change the name and keep our tax ID? Or we file for a new tax ID with a new name?

We have a small retail store with mostly consignment merchandise, and I wholesale some other items. This business is largely dependent on me, so our accountant just valued it at the inventory plus $1k for our consignment list. Our total inventory, fixtures, etc total about $8k which is all exempt with our wildcard exemptions. When we file, do we just keep everything going as normal? That is my expectation - is it realistic? We have some exempt cash also - can this be used for normal business expenses between filing and the 341 meeting?

Another question about exempt cash - after filing, will the trustee examine each penny that's spent between filing and the 341? What's acceptable and appropriate?

Thanks - this is an amazing board!

[miindebt]

anyone???

[miindebt]

Ok...maybe I should repost this under the small business heading?

[freeatlast09]

I'm certainly not an expert, but I think the WF person is wrong.

A partnership is not a separate legal entity (as far as I know) such as a corporation or LLC. If you had a corporation with debt you personally guaranteed, your responsibility for paying that debt would be discharged in the bankruptcy, but the debt itself still exists at the corporate level. The creditor would be able to come after the corporation. Whether they would is an entirely different matter and would certainly depend on the amounts. So you'd have 2 choices: BK the corporation (waste of money) or just let the corp die (what most people do).

It sound like your attorney is correct - that debt will be discharged. It also sounds like you have everything exempted so you should be able to keep going after the BK. Forming a new entity should also be fine. You should definitely discuss the timing of that action with your attorney though.

Cash - if you are spending it on your normal operating expenses, I don't know how the trustee can question that.

Best of luck to you.

[miindebt]

Thanks for your response - we talked with our attorney yesterday, and like you said, the partnership really isn't a separate entity. But our partnership files its own tax return, so he thought it would be best to form a new company and dissolve the old one. He said don't do it until we file, but afte that, go ahead. So do we just transfer assets to the new entity from the old one? It seems a rather simple way to keep ourselves from being sued...I'm just wondering how this all works...

[marie]

I am in a similar position, and My attorney said that the new company has to buy the assets ( in our case a truck ) of the old company at or near fair market value, and to set up a monthly payment plan from the new company to the old ( small monthly payments ) this creates a lien on the asset.

you can't really prevent the creditor from sueing, but if there is only small amounts of money going in each month, and no lump sums available, its less worth it to them .

If they never bother to sue, then the old company ( you ) get to keep the money

[frogger]

He said don't do it until we file, but afte that, go ahead. So do we just transfer assets to the new entity from the old one? It seems a rather simple way to keep ourselves from being sued...I'm just wondering how this all works...

Correct. After you file, you set up a new LLC. As to transferring assets, don't do anything at this time.

Unless you have a lot of stuff, you can probably exempt most of it personally. Your stuff, like the rest of us, is worthless. When you start transferring or setting up a loan, you are creating a value and you don't want to do that.

And as a thought for you to consider, perhaps you want to keep the assets in your personal name and lease them to the new corporation when you form it.

[freeatlast09]

And as a thought for you to consider, perhaps you want to keep the assets in your personal name and lease them to the new corporation when you form it.

That's a really good idea. Reason being this - there are cases when a company transfers assets to a new entity doing the exact same business. Creditors have argued (sometimes successfully) that the new entity is just the same business with a new name and they get theirs. There is an actual legal term for it that we discussed with our attorney, but it escapes me right now. Now, this usually involves tens or hundreds of thousands in equipment and fixtures, but better safe than sorry. I believe you said you only had 8K in fixtures and inventory so I don't think this would be worth the creditors time to come after a new entity, but you never know. Since everything is exempted, I'd definitely think about frogger's suggestion of leasing the property to the new LLC or Corp.

Best of luck to you.