Soon to be partner in BK any risks on my end?

Question

Hey BP Fam,

I have been pondering for several months on this so I decided to reach out to you and ask of you opinions. As they are always helpful and make us exercise our critical thinking skills! I am thinking of forming an Llc with a friend but in our process of discussing I was informed that they are in BK…..

We were going to combine funds but both of us were advised by an attorney that this may not be in our best interest. The attorney suggested she check with her BK attorney…. He also suggested that we consider just a joint venture as I have read b many. My friend is concerned with protection. It was then suggested that we each for an llc then do a joint venture together. Any thoughts?

Ive read many prior posts on BP and I did propose the idea of the JV because of some of the questions and answers that Holdman, Scott, Gully, Carey, and everyone else has stated. It had me concerned and almost scared in my pants and that was the purpose…

Your thoughts? Questions I should be asking or concerns I may be missing?

Jerry W. · Answer

@Lolita Ellis , bankruptcy is a pretty complicated issue.  First off follow the advice of the attorney.  If you pay him and he is wrong he is liable to you.  That is not true for advice on internet forums.  By all means listen to advice, but in touchy legal matters run them all past the attorney.

Keep in mind there are prefiling assets and post filing assets.  Any asset owned prior to filing is subject  to seizure or sale by the trustee in Chapter 7.  The rules are different for Ch 13. If a person has huge medical bills they cannot repay, even if they make a good income, or had a business go south and owe large amounts of money, after filing, the new income that comes in is often (not always) free of claims of the bankruptcy trustee.

Only an attorney with knowledge of bankruptcy laws who looks at the specific facts can advise you safely.  It is great to get ideas here, just do not act on them in this case without sound legal advice from an expert.

Lolita Ellis · Answer

@Jerry W. Thank you. I will def follow the advice of the attorney. He just had us shaking in our boots so I wanted to see if anyone else had experienced this. Thanks alot.

Brian Mathews · Answer

It seems to me that if they have funds to combine to purchase real estate, that maybe they should be paying the debts they owe at some level.  Once the trustee gets wind of this, I have a feeling there will be hell to pay and you could potentially lose as well.  I did the BK thing years ago and the trustee does a very thorough background check before you get there and will ask you about it.  We sold a car we had several months before we filed for cash to live.  And the trustee asked us about why we sold it and what we did with the funds. They also ask why you are declaring BK.   They will also as the audience which consists of other BK's and creditors to those people if they have oppose the BK and on what cause.  For the normal broke person, nothing happens, but if there are assets, you can bet somebody will be there. It was a very humbling experience.

Mary B. · Answer

Interesting, you have consulted an attorney yet you come to BP after the fact... BP ROCKS... :-)

Kudos,

Mary

Joel Owens · Answer

Your friend has to disclose all assets in a BK. The reason is the trustee is looking for funds to pay the creditors, the court fees, and attorneys.

Your friend will testify under oath as to their situation they have filed in writing the BK court to get the repayment plan approved chapter 13 or do a chapter 7 liquidation.

Not disclosing cash or other equity assets is a criminal offense under the federal laws. That's a good way to get hefty penalties and maybe even some prison time. If your friend has substantial assets they might be better off negotiating the debts down for payoffs instead of a BK.

They need to really talk to their BK attorney but remember the BK attorney gets paid to file and then ongoing payments with a plan so what they say has to be taken with a grain of salt. They might want to bounce their ideas off of a regular attorney to get a non-biased opinion. Either way you have disclosed on a national forum possibly forming a partnership with a friend who has filed BK but has assets. I think you should not touch this with a ten foot pole and do your own thing or partner up with someone else without these issues.

No legal advice.

Soon to be partner in BK any risks on my end?

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