Trustee chose no interest in the business

[chijuara]

I just received a Chapter 7 discharge, which included a business loan. I am still a 50% partner in a service company, and my partner has been actively trying to disassociate me by accusing me for not acting in good faith when I decided to leave the company. I don't think it will be easy for his attorney to convince the judge that I hurt the company, because I did not. The accusations are very shaky. This seems to be the only thing he can do to get rid of me.

I entered the automatic stay shortly before appearing for the hearing in a disassociation lawsuit brought against me. The trustee chose a no-asset case, while I was expecting to be disassociated after filing. The business is not entirely profitable, but I owe several thousand dollars in state and federal taxes, because the company never had enough funds to distribute to its members. Would anyone recommend proceeding with the legal battle to try to get the partner to buy me out? I just want to pay some $10,000 in taxes. My income is modest now. I don't own a house or have any assets. I also can't afford a lawyer. Or should I just sign the business over? What are the risks in such circumstances post discharge?

Thank you!

[justbroke]

Your risk is the taxes which are non-dischargeable if they are "trust fund" (or sales) taxes.

Since you're a partner, are you an LLC or have some other corporate structure for that business? I would not just give the business away unless you have an attorney to write up something designating that you're trading your ownership interest for the tax debt. Speaking from experience, the tax debt can come back to haunt you if not done property.

I am not a tax professional but you should seriously consider consulting on this one. I only say that because a.) I can't give tax advice, and b.) you have a partnership and that partnership owes federal and state taxes.

This one is officially too complex for me.

[chijuara]

Thank you for the reply, justbroke!

We are an LLC. Now that I am still left as my partner, I am not sure what to do. I did most of the work in forming the company, and I left because working endless hours was no longer worth it for me. I left the company for a different job with a far lesser pay.

I guess my concern is what happens now. The only thing my partner offered as compensation is to release me from the business loan liability. I still hold a grudge that I didn't get bought out of my half, and on top of that I still owe money.

What will happen if my partner goes out of business? Am I really free of the business liability after the discharge?

[justbroke]

You should already be free of your "personal" liability as far as any "business loan" that the LLC obtained and for which you personally guaranteed. The LLC debt that you personally guaranteed should have been listed in the bankruptcy and discharged. As for the taxes that are non-dischargeable, you will likely still owe those. I'm not a tax professional so I can't say what would happen with the taxes. I can't tell if it would be proportionate or if you have business assets (it's a service business, so probably unlikely on the assets).

Too complex for me since I haven't personally had this issue. I did have the non-dischargeable (sales, use and tangible) tax issue, but not as a member of an LLC.

[chijuara]

What does IRS usually require for proof of member interest disassociation?

[justbroke]

Probably the same that your State's office of the Secretary of State requires. In Florida, we have a form DISSOCIATION OR RESIGNATION OF MEMBER, MANAGER FROM FLORIDA OR FOREIGN LIMITED LIABILITY COMPANY which is filed with and recorded by the Secretary of State.

In our case, here in Florida, the IRS would recognize the "certified" copy of this dissociation/resignation once it is recorded.