Legal Question in Business Law in California

When your partner files bankruptcy, his ownership in the partnership comes under the control of the bankruptcy trustee. He can no longer do anything without the trustee's OK, unless he establishes himself as a debtor in posession under a bankruptcy plan. If it is a straight liquidation (Ch. 7) that is not an option. In any case you will have to go through the trustee to obtain full control of the business. As for your rights, that depends in large measure on which chapter he files under.

I can't be sure based upon these limited facts, but chances are that the bankruptcy trustee will take over your partner's share of the business, at least temporarily. Depending upon the nature of the business and the extent of your partner's debt, the trustee may try to sell his share. If she does, you will be free to bid on it. But if you think the business is just going to automatically become yours for free, you're quite mistaken.

Regardless of what happens with your partner's share of the business, he may end up seeing his obligations under your joint loan discharged. That would leave you responsible for the entire amount.

The Bankruptcy court and trustee become your new partners in the business, at least for a while until this gets sorted out. If you want to get legal help dealing with them and the issues that will come up in this, feel free to contact me.