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Bankruptcy and Business Partnerships: How Bankruptcy Can Affect Your Business Partnerships

Bankruptcy and Business Partnerships: How Bankruptcy Can Affect Your Business Partnerships

Many people have concerns about what will happen if they file for bankruptcy as a business partnership. Finding out about the effects of bankruptcy on business partnerships may help you decide whether bankruptcy is the right option for you. There are various challenges and steps involved with business partnership bankruptcy. Talk to a Chattanooga bankruptcy lawyer to explore these steps further.

Challenges of Business Partnership Bankruptcy

The challenges of business partnership bankruptcy revolve around financial effects and the impact of bankruptcy on the business itself. Since a partnership involves more than one person, filing for bankruptcy as a partnership has unique challenges. These challenges come from the fact that one business partner may have better financial assets than the other partner.

Filing for bankruptcy as a partnership becomes risky because of the way creditors handle this dilemma. Creditors are less likely to offer a new repayment plan under Chapter 13 bankruptcy if one business partner has enough financial assets to pay off the debt. The other partner may not have enough financial assets, but creditors do not care about this.

Creditors care about receiving the money owed to them. This is what leads many creditors to pressure business partners to use Chapter 7 bankruptcy instead so that the partner with greater financial assets can be used to pay off the debt faster. If not, the creditors are left with less money.

What often happens, as a result, is business partnerships fall apart after bankruptcy. This is not only because one partner may have to take the financial blow, but also because of investment losses, lawsuits, and poison pill clauses.

Effects of Business Partnership Bankruptcy

The two options for filing for business partnership bankruptcy are Chapter 7 bankruptcy and Chapter 11 bankruptcy. A common issue with Chapter 7 bankruptcy is that this type of bankruptcy does not usually allow business partnerships to discharge the debt. What happens is the business assets are sold off until the debts are paid off.

What makes things more complicated is business partner liability. Business partners may have different liabilities for bankruptcy depending on the type of partnership. Sometimes both partners are liable for the debt, while in other cases, limited business partners are not liable.

Filing for Chapter 11 bankruptcy as a business partnership sometimes turns into selling financial assets owned by certain business partners. Chapter 11 bankruptcy usually reorganizes debt into a more affordable payment plan. This process may involve different business partners voting on the debt reorganization plan.

One of the most common challenges is agreeing to file for bankruptcy with your business partner. Personal and business conflicts may arise from disagreements related to bankruptcy and the future of the business. The aftereffects of bankruptcy may also make forming future business partnerships difficult.

Contact Tom Bible Law Today

Filing bankruptcy for a partnership is an intimidating decision. Feel free to contact us at Tom Bible Law today at (423) 424-3116 for a consultation about your business partnership bankruptcy. Our legal team of Tennessee bankruptcy attorneys can help you explore the process of filing for bankruptcy as a business partnership. We are located in the Tennessee cities of Chattanooga and Tullahoma.

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