Discussion:1065 Sale of Bus Loss due to Bkrptcy by Purchaser?

I have a client who sold all of the assets of his partnership, including use of the name, etc. He had received a down payment and a couple of the financed payments per the terms of the contract. Then the company who purchased my clients business filed for Chapter 11. We had filed the previous return with installment sales, filed all the proper forms, etc., but left the partnership open with the cash balance and the asset balance as the remainder of the note amount that was due. The client has been advised that they will likely not see anything out of the bankruptcy even though they filed as a creditor.

On to the question - how do I handle this on the 1065? They have to be able to take the loss, but I'm not certain how to go about this on the 1065. I can distribute the leftover cash obviously, but is there a specific form I should use for this? How do I explain the loss? The partners had plenty of adjusted basis to support taking the losses personally - I'm just not certain how or where to put the adjustment for the loss of income due to the bankruptcy. Just an FYI, the people who did the purchase from my clients sadly made up a P&S agreement that benefitted only the purchaser and basically left the seller with no rights.

Thanks for any help and advice.