Chapter 7 Bankruptcy for Business Partnerships in New Jersey
The rules governing a business partnership for tax purposes generally equate the individual partners with the partnership itself for tax purposes. Likely, this is one of the reasons why Chapter 7 bankruptcy for business partnerships in New Jersey may be permissible.
The Chapter 7 process for a business entity does serve to eventually satisfy the partnership’s debt but, because the partnership is a separate entity from the individual partners, the business bankruptcy works slightly differently than a personal bankruptcy at the individual partner level. An experienced Chapter 7 business bankruptcy lawyer could help guide you through the bankruptcy business partnership process and ensure that you are taking the proper steps.
Types of Business Partnerships in New Jersey
The way the business partnership is organized will be important in determining the personal liability of the individual partners for the business debt. While both general partnerships and limited partnerships may take advantage of Chapter 7 bankruptcy for business partnerships in New Jersey, the following rules will apply based on how the partnership is structured:
- General partnerships – each of the general partners are also personally liable for the debts of the partnership
- Limited partnerships – one general partner is personally liable for the debts of the partnership
If the partner is also personally liable for the business debt, it is also possible that they may, in some cases, wish to consider filing for bankruptcy at the personal level depending on the extent of the debts and the value of the partnership assets.
Chapter 7 Asset Sales
When an individual or sole proprietor, who is treated as an individual, files for personal bankruptcy, state or federal level exemptions apply to protect a portion of their property from sale in bankruptcy. In Chapter 7 bankruptcy for business partnerships in New Jersey, however, these personal exemptions do not apply because the bankruptcy takes place at the business level.
As a result, the bankruptcy trustee will typically liquidate all the partnership’s assets and use the proceeds to pay the creditors. Unfortunately, the partnership’s debts are not actually discharged in this process as they would be in a personal Chapter 7 bankruptcy. If the partnership’s assets raise insufficient capital to repay the creditors, it is possible that the trustee can reach the personal assets of the partners to repay the debts.
Second-Level Chapter 7 Filing at the Personal Level
Whether the partners’ personal assets may be sold depends on the structure of the business partnership and whether the partner is personally liable for the debt. As discussed above, only general partners are personally liable for the partnership’s debts.
In these cases, a second level Chapter 7 filing at the personal level may be advisable if the partner does not have the funds necessary to satisfy the partnership’s remaining debts.
At the personal level, the general partner would be entitled to use the federal or state exemptions to protect some of their property and would also be entitled to a discharge of debt in the end. However, if the partner has valuable assets, these assets could be sold in the personal bankruptcy process to satisfy the partnership debts.
How a New Jersey Chapter 7 Business Bankruptcy Attorney Can Help
An accomplished bankruptcy attorney could help business partnerships evaluate whether, as a general partner, a personal Chapter 7 bankruptcy is a logical solution. They can work with you and your business partner to help you find the bankruptcy option that works for you.
Chapter 7 bankruptcy can be an appropriate option for business partnerships in New Jersey. A detail-oriented attorney can examine your business partnership to help determine whether it is the proper solution for you. To learn more about how a seasoned lawyer could with you with Chapter 7 bankruptcy for business partnerships in New Jersey, call today to schedule a consultation.