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Can a Partnership File Bankruptcy?

By Douglas Jacobs, California Bankruptcy Attorney on Jul 6, 2008 in Bankruptcy Practice and Procedure, General Bankruptcy Information

Partnerships, like many other businesses in this economy, can fail too. What are your options when the debts of the business exceed its assets?

Unlike a corporation, a partnership lacks the “shield” between its owners and its debts. Legally, it is more like a sole proprietorship (but one owned by more than one person). The individual partners or owners are individually liable for all of the debts of the partnership! They also own all of the assets.

So, if the business is failing, usually that will mean that the individual partners will each have to file bankruptcy to get relief from the debts. Generally this starts with the dissolution of the partnership. Unless there is a specific agreement to the contrary, each partner owns an equal share of the assets. These need to be sold to help pay the debts. Any assets left over can be divided (or sold and the proceeds divided).

Unfortunately, any debts not paid after the assets are liquidated are owed by all of the partners. That means that a creditor can proceed against any of the partners for the entire debt! Just because you and your partner may have agreed differently, you are still both liable in the eyes of the law. Thus, the comment above that each partner might have to file bankruptcy.

To fully understand all of your rights and obligations, please seek the help of a qualified bankruptcy attorney.

If you liked that post, then try these...

Can I Include My Roommate in My Household Size? by Chip Parker, Jacksonville Bankruptcy Attorney

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Ten Reasons to Delay Filing Bankruptcy! Reason No. 3: Homestead Exemptions by Kevin Gipson, New Orleans Bankruptcy Attorney

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