I would find an arrangement that allows both of you the best of options to digest the situation an go on with your life. For the moment i would take the assumption the project is a failure and don't count on "hopes on continuing" . when everything is settled you can re-look at the pieces and see what is salvageable but for now the biggest problem seems to be the loan of $10K. Even if you both would be able to walk away , you both are responsible for paying back the loan. Even if your co-founder is not your friend anymore, try to fix that situation. Sell assets , do some contracting work and try to end up with a 0$ debt situation. The world is a small place , don't make casualties, only blame yourself and take with you everything you learned from this job and apply it in the future. This failure will be a useful lesson.