Introduction
Bankruptcy explains a lawfully accepted failure of an entity or organizations to pay off all of its creditors. There are two types of bankruptcy i.e. involuntary bankruptcy and voluntary bankruptcy. The idea of bankruptcy is aimed at enabling the debtor avoid paying their creditors and continue with their daily business. More so, the debtor is protected from creditors who could have ill motive when demanding for their funds at the expense of the debtors business.
On the other hand, the law ensures that funds are fairly and equitably allocated to the various categories of creditors. “Bankruptcy today seeks the dual purpose of benefiting the debtor as well as the creditor by finding a happy medium where the debtor can comfortably meet their monthly obligation and the creditors recoup their investment”.
Analysis
Concerning the formal request for involuntary bankruptcy, the court should not grant, due to provision under chapter 7 involuntary bankruptcy, that the debtor is needed to liquidate their assets to compensate or pay back their creditors. According to “Section 303(b)(3)(A): a partner does have the right to file an involuntary petition”. Similarly, the chapter requires the debtor to compensate his creditors through his own sources of earnings in cases where he is financially viable to take care of his everyday expenditures and still afford a regular compensation to his respective creditors. This is deemed possible where the debtor has a stable and reliable source of livelihood; hence the debtor may be permitted to present a formal legal request for involuntary bankruptcy under this section of the law, giving him a likelihood of not being insolvent. In chapter 7 “there is no hope of repaying any of your debts”.
On the other hand, the creditor can oppose the debtors’ claim of letting the court put him under the bankruptcy bid, by presenting a case in court to declare him still solvent. However, with reliable evidence the court may declare the debtor bankrupt and he would be forced to tackle all of the creditors whom he owes.
In addition, there is a provision in chapter 11 that allows an involuntary formal request be initiated in opposition to a partnership by a smaller number of all general partners in a given partnership. This action may be taken by fewer than all of the general partners who may differ to agree with other partners, state or local law. According to the Title 11, Chapter 11, Subchapter 1, Section 303(b)(3) “the court may grant a petition for bankruptcy to the partnership though filed by one partner or Beren, if the undisputed claim totals to at least $10,000 more than the value of any property of the debtor.”
In the case of walnut, the partnership owed its creditors more than $ 380,000 while it had only $550 in its account; therefore there is a high possibility of the court granting the bankruptcy. However, under chapter 7 the court would not have given the petition as the other two partners would have filed for objections if its creditors would take the case to court. Despite this, the court can grant a petition for liquidation to the business if it has substantial assets to repay its creditors.
“Can the bankruptcy court confirm the debtor’s plan of reorganization?” No
A debtor may opt to reorganize or restructure assets and debts in order to preserve assets and pay creditor claims out of his personal earnings. It usually involves an orderly liquidation of the whole or part of his assets. At the same time, it is argued that companies or associations restructure their assets and debts to protect its assets from being liquidated, in cases where the partnership cannot afford to pay all its debts. The fundamental process entails reduction of each creditor’s claims to permit fractional or partial payment, hence allowing the business to carry on with its daily activities.
The court may confirm over the disagreement of a class of unsecured claims, only if the members of the members of the class are unimpaired and if they will receive under the plan property of a value equal to the allowed amount of their unsecured claims, or if no junior class will share under the plan. This implies that if the class is impaired, then they must be paid in full or if paid less than in full, hence no junior class may receive anything under the reorganization.
Therefore, the court will not confirm the debtors plan to reorganize as the second class was impaired and this implies that the debtor should pay the full amount owed. On the other hand, this would have left nothing for the third class, hence going contrary with the law requirement. The classes’ of equity need the court to confirm over a dispute if the members of the class are unimpaired, hence they ought to receive their redemption rights.
References
Henry R. C, (2008), Contemporary Business and Online Commerce Law, 5th Edition, prentice hall publishers, New York. Web.