@jag157 Disclaimer: I am a business & collections attorney, but not your attorney. This post is for informational purposes only and should not be construed as legal advice about your specific situation. It is always important to consult with qualified counsel in your area that can help.
As others have said, please go to an attorney in your area because there can be a whole host of legal issues relating to this bankruptcy, your boss and the business.
As a sidenote, has your employer reached out to an attorney or collections agency to try to collect this debt? I do that, and we usually work on a contingency basis which means if we do not collect we don’t get paid. It would cost him nothing out of pocket. Might be worth exploring.
Anyway, here’s what I would do in your situation: I would go to a business attorney and tell them literally every single detail that you know about the current business and your boss. In order for them to help you, you need to be 100% transparent. The scenario seems strange, and my Spidey senses are telling me there is more to the story than what maybe you even know as to your boss’s motivation.
From experience, getting into a business partnership seems great and wonderful at the beginning, but, much like relationships, they can go south very quickly. Winding down a partnership is tough. You will at least want to have an attorney draft the partnership agreement, so that you are protected in the event that this happens again. If your boss is declaring bankruptcy, it means not only that this client didn’t pay him, but that he owes people money. For a business to go belly up over one client not paying, tells me that there is some financial mismanagement here. That’s probably not somebody you want to get tied up with.
It may be best to see if there is any way that you can use the entity that you already have opened (your side business), and perhaps do some sort of profit share with your boss where he gets a cut of these contracts in exchange for assigning them to you. That way, you guys aren’t actual partners, you are the owner of the business and he is just sort of a broker that brings in new business for you for a fee & helps manage the client relationships. That may be a way around becoming entangled with him. This is just me spitball without knowing all the facts, though. Again, go consult with a business attorney in your location. Good luck!
ETA: read some of the comments. If he is filing bankruptcy due to a personally guaranteed loan, and then opening up a new business entity the next day that does the exact same thing, that could be seen as a fraudulent conveyance under bankruptcy laws. You can’t just shut down one business and open up an under another name the next day to evade Creditors. As a collections attorney, I know it is done frequently, but that’s technically illegal and actionable. My gut is telling me that he is going to open the entity under your name so that he can say that it’s a completely different entity that he just works for to avoid paying the Creditors. If the creditors find out about this new entity, they can bring the new entity into a lawsuit for fraudulent conveyance. When you wind down a business entity, you need to pay off Creditors to the extent you were able to properly wind down. Most people don’t do this, and transfer assets, like the contracts you mention above, to the new entity and start over. That’s not the way it’s supposed to be done and can open your new entity up to liability before it even starts.
