Partner in LLC files Chapter 7 could use ideas - Posted by domineaux

Real Estate Investing Real Estate Law
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Posted by domineaux on March 02, 2010 at 18:44:09:

I will contact the trustee in the morning and request the BR petition and schedules. I am appx 7 hours from county of the BR court, so I am hoping I can get it via Email.

The manager of the LLC has not be forthcoming with information, which has been requested many times in a myriad of ways. I do have some documents, that were emailed to me from him at various times. I have stack about 8 inches tall, that I will have to go through to answer questions. Additionally, I may have to request recorded documents for competent answers to your questions.

I will acquire a Pacer account or make necessary arrangements to get the BR information.

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Partner in LLC files Chapter 7 could use ideas - Posted by domineaux

Posted by domineaux on March 02, 2010 at 10:37:33:

I own an interest in improved commercial rental property that is an LLC. My interest is also inside an LLC.

The other partners are in individual LLCs as well.

One partner has filed for Chap 7 personal bankruptcy. The bankruptcy is in his personal name. I’m not sure, if the BR court can go after his interest since it is in LLC. I suspect not, but that’s why I’m posting here.

I thought to just write a letter to the court indicating my interest to buy this insolvent partner’s interest. Then again I don’t know if he would disclose information about his LLC in a Chapter 7.

Basically, I’m thinking this may be two entirely different issues. One the personal bankruptcy,and two the LLC I am partnered with this person.

This partner, is managing partner in LLC and has stonewalled me for over 3 years with suspicious income statements and claims of no income. I have never received any money for anything. Basically, I have deferred to create a problem, but it is significant enough amount now to be worthwhile to pursue.

I thought maybe I should create and file a lien against the property for my prorata portion of leasehold payments for the past 3+ years. I was thinking to record with county clerk against the property for the amount of money I should have received in gross rents. I realize if the amounts were contested there would always be possibility of negotiation.

This way I could put cloud on title and might advantage me especially if court has power to liquidate property in the LLC. Since all partners and the property are all in LLCs. I’m not sure the court has jurisdiction over the LLCs in a personal bankruptcy.

Regardless, just a few thoughts or ideas would be a help.
There may be other issues I’ve not thought about, but someone might pick up on them reading this.

This discussion might take on additional interests and thoughts I’ve not thought about at this point, but gotta start somewhere.

Thanks

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Re: Partner in LLC files Chapter 7 could use ideas - Posted by Gary

Posted by Gary on March 03, 2010 at 22:44:16:

I would spend some time reading the LLC’s operating agreement. It should spell out in great detail the responsibilities of the managing member as it relates to record keeping/accounting/tax matters, etc.

There are two types of property (real and personal), each one represented differently on the BK schedules. The LLC owns the real property. Your interest (and each of the members of the various LLC’s if their are more than one) is personal property.

His personal BK should not affect the LLC (other than his personal property interest in the LLC needs to be listed as an asset in his personal BK estate). His failure to properly list any of his assets could be considered fraud and/or perjury by the BK Trustee (as I am reasonably certain it is a sworn statement made under penalty of perjury).

The BK Trustee would likely entertain a reasonable offer to buy the managing member’s interest. Keep in mind that the Trustee’s obligation is to the creditors not to your interests. It would be wise to have a well-purposed vision of how you arrived at the value, keeping in mind that few folks would want an interest in an LLC where they are in “partnership” with unknowns that are not of their choosing (this should seriously diminish the value- at least in the mind of the Trustee).

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Partners liable on all partnership debt - Posted by John Merchant

Posted by John Merchant on March 02, 2010 at 15:07:35:

Although you tell us about the LLC, you persist in using the term “partners” and I’d caution you to be very careful NOT to use this word.

Law in every state says that in a true general partnership (GP) ALL Ps are equally liable (jointly and severally is how the law puts it)for ANY and ALL Pship debts.

So your continued use of the term Partners might just persuade some judge to find that this IS a Partnership and hold YOU liable for those debts.

e.g. that judge might just find your LLC was in fact just a sham and you were/are in fact and law merely a GP so YOU are liable on that debt.

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Chapter 7 could use ideas - Posted by Nike

Posted by Nike on March 02, 2010 at 11:09:17:

He has to list his interest in the LLC. How many members? Does the LLC file taxes as partnership or did you elect S corp status? Do you have copies of tax returns? if not, why? What assets/liabilities are included in the LLC? Do you/partners have personal guarantees?

Get a copy of his bk petition and all schedules? what value did he assign to the LLC? What other assets does he have? Is he self-employed? Provide answers and we’ll sort this out

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Re: Chapter 7 could use ideas - Posted by domineaux

Posted by domineaux on March 02, 2010 at 12:27:17:

There are 3 -partners 1/3rd each

Managing partner has never disclosed any information about tax returns or S election.

No copies of any returns, totally blown me off on any information with repect to taxes.

The assets of the LLC are the improved rental property.

No personal guarantees to my knowledge.

I got a copy of the filed Bankruptcy for Chapt 7.

The filing is for personal bankrupty. The real estate in the LLC is either ancillary or not a part of the bankruptcy.

The deadline with the BR court appears to be 3/29/10 for me to take any action in this situation.

I was not a party to the action AFAIK, but the managing partner,who filed Chap 7, did send me the file after first meeting with creditors. The first meeting was 1/28/10

I don’t have the papers at this location indicating the vlaue assigned to LLC.

The managing partner has extended interests in real estate. He is self employed. All holdings are in corp or LLC with partners.

There is no question of criminal undertones. Stonewalling me for 3 years and possibly filing no tax returns as managing partner.

All I’ve heard is there is no income from property above expenses, therefore no tax liability incurred.
I know I’ve complained enough, but I’ve been thinking inside the box trying to work through issues amicably.

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ideas - Posted by Nike

Posted by Nike on March 02, 2010 at 12:48:30:

Look at Schedule B-- he should’ve listed corporate stock and intersts in LLC. What market values did he assign these interests? He should’ve filed a tax return- either 1065 or 1120S and provided you with K-1’s. What asset is in the LLC? Is there a mortgage? What do you think the asset is worth (estimate?).

What assets does he list on Schedules A and B? What market values does he assign each asset? What liabilites (sch.D-F)? Does he owe IRS/State?

Provide answers to each question and we can sort this out. (p.s.- You need to make a demand (via certified mail) for a copy of all tax returns and accounting of all income/rents and liabilites.)

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Re: ideas - Posted by domineaux

Posted by domineaux on March 02, 2010 at 15:04:28:

The managing partner has not supplied to me any tax documents. His continued response has been there is no tax liability, and basically has refused to send anything to me.

I am drafting a letter to make the demand as you mentioned. I have made demands in the past, but not via Certified mail.

To be very honest, I doubt seriously he will respond to a demand letter.

I think this will require some challenges that aren’t necessarily in line with convention discovery methods.

If you have any ideas on going further without the above I can at least give them a go.

I did talk with BR trustee, and they have found numerous instances of suspicious responses to valuations he has supplied to the court.

Naturally, the BR trustee was interested to pick my brain more than cooperatively supplying information to me.

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ideas - Posted by Nike

Posted by Nike on March 02, 2010 at 15:41:41:

You need to get a copy of the bk petition and all schedules. You can go to the bk court clerks office and get a copy or get a Pacer account and get a copy online.

What assets are in the LLC? What do you believe they’re worth? Is there a mortgage(s)? How much have you invested? Did you provide any personal guarantees?

C’mon- quit screwing around. You’re not providing necessary answers to basic questions.