What Happens If a Business Partner Declares Bankruptcy?

Posted on September 19, 2018 at 9:00am by
Picture of business partners owners of a small bookstore

Running a business is full of challenges. If you run a business – which is probably the case since you’re reading this – it’s very likely that you’re familiar with just how challenging it can be. Things can be going great – operations are running smoothly, you’re reaching all of your financial goals – and you can still run into problems outside the realm of your control. For example, you could be going through your business’ mail one day and come across a bankruptcy notice from one of your main suppliers. What does this mean for your business? Will you still be able to do business with this supplier? Are there steps you need to take to avoid financial loss?

When dealing with a business partner’s bankruptcy, several factors determine your available options. If they are filing for Chapter 11 bankruptcy, then their business remains in control of its possessions and assets. That also means the business could be staying open, so you may be able to continue doing business with them. However, a business partner that files for Chapter 7 bankruptcy is going to cease operations.

Another factor that will determine how your business is affected by your partner’s bankruptcy is the nature of your relationship with the debtor. Did you supply the debtor or did the debtor supply you? What were the terms of your contract?

If you supplied the debtor with goods or services, it is likely that your repayment will be affected by their bankruptcy. The timing of your repayment will be determined by the bankruptcy plan. It may sound backwards – but beware of past due payments made to you within the 90-day period before the debtor filed for bankruptcy. The court can demand you repay the amount because the debtor gave you priority consideration over other debtors. There are legal ways to hold on to this money, though, so it’s important you consult with an attorney to see if they can help you retain those funds.

The Bankruptcy Code provides even more solutions for business owners who find themselves caught up in a business partner’s bankruptcy. Exploring those options is exactly why you should contact a bankruptcy attorney with the experience to help. Here at The Sader Law Firm, every attorney specializes in the practice of bankruptcy law – and we would love to help you resolve your bankruptcy issue.

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