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Partnerships in Illinois (Exempt?)

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  • Partnerships in Illinois (Exempt?)

    If you are part of an Illinois partnership that owns a piece of property is that partnership exempt from bankruptcy? I thought I had read somewhere that if the persons filing for bankruptcy is in a partnership with other people that particular property is exempt because it would effect the other parties. Any case law or proof that is true?

  • #2
    I have never read where a simple "partnership" had protection from the Bankruptcy Trustee. Perhaps you are reading about the protection from creditors themselves but a bankruptcy is a different thing.

    In a bankruptcy of an individual, the Trustee steps into the shoes of the debtor effective the day the debtor filed for bankruptcy. In this capacity, with the power of the debtor (and the law), the Trustee can initiate anything that the debtor could have initiated under both bankruptcy and non-bankruptcy law. This could mean a forced sale if that member, the debtor, could have forced a sale. The Trustee could also sell the debtor's position in the partnership as well.

    With a little research I found a recent case Sullivan v. Mathew, 2015 WL 1509794 (N.D. Ill. 3/30/15). This case may be right on point and shows my point as to the Trustee's ability to force a sale. While the case had some other issues, the Trustee forgot to "assume" the executory contract that created and controls the partnership, the court was very clear on the Trustee's ability to force a sale (or be paid the value of the partner's position).
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    I am not an attorney. Any advice provided is not legal advice.


    • #3
      It is true that the trustee steps into the place of the debtor. State law and the partnership agreement will determine whether the partner has the power to force a liquidation. I didn't read the case that justbroke posted. It suspect it may discuss the below state law in detail.

      Nolo lists the following exemption for Illinois:

      Illinois has enacted the Uniform Partnership Act, which exempts a partner’s interest in specific property. 805 ILCS 205/25.
      That is out of date and, even if not out of date, deceptively simple. It could very well be where somebody may get the idea that their interest in a partnership is exempt.

      805 ILCS 205 was repealed and replaced with 805 ILCS 206 effective 1/1/2008.

      You can read the repealed law at

      Here is the new partnership law:

      Under section 601(6), if a partner files bankruptcy, he/she becomes disassociated. The disassociation is considered a "wrongful disassociation" under Section 602. See section 603 for the consequences of a disassociation. After skimming the relevant portions of the law, it appears that either a partnership will be dissolved (if a majority of the other partners decide to dissolve) or the partner will be bought out by the other partners.

      Please do not rely on my summary. It is incomplete. Read the law for yourself and consult with an Illinois attorney.
      Last edited by LadyInTheRed; 03-08-2017, 07:45 PM.
      LadyInTheRed is in the black!
      Filed Chap 13 April 2010. Discharged May 2015.
      $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!


      • #4
        LadyInTheRed very cool. I found this in my reference specifically regarding what you addressed. So it looks like the Trustee may not be able to dissolve or force a dissolution, but they can force a buy-out.

        Under the Illinois Uniform Partnership Act, the bankruptcy of a partner will result in that partner’s dissociation from the partnership. 805 ILCS 206/601(6)(i). This dissociation will not necessarily result in the partnership’s dissolution.

        See 805 ILCS 206/801. If a partner is dissociated due to bankruptcy, the partnership must purchase his interest for a specified buy-out price. 805 ILCS 206/701(a). If the partnership does not pay, the disassociated debtor (or a trustee standing in his shoes) can sue the partnership to set and recover the buy-out price. 805 ILCS 206/701(i).
        The most interesting part is that the Trustee can sue to "set" the buy-out price. It's not a price that the affected partners may be willing to pay, but what the Trustee has obtained as the set price based on the lawsuit.

        (As Lady wrote, please review this with an attorney. The referenced case is from 2015.)
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        I am not an attorney. Any advice provided is not legal advice.


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