Should owners consider the option of fore-closure or filing for bankruptcy protection?
Both foreclosure and bankruptcy are options. However, the decision often hinges upon whether the indebtedness was secured through partners’ personal guarantees. When liabilities are reduced or are deemed to be distributions, partners can be charged with the gains, and they’ll have to come up with the cash to pay the additional tax, unless they can find an appropriate exclusion. What’s most important is that partners consider all options and the consequences of each choice, while considering the long-term business impacts. Though short-term business survival and debt reduction may be the current focus, eventually the economy will turn and partners want to be ready to capitalize on the rebounding market. TOM O’ROURKE is a tax partner with Haskell & White LLP. Reach him at (949) 450-6358 or TORourke@hwcpa.com.
