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    Bankruptcy and Reorganization

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    Consider the following cases on Bankruptcy and Reorganization.

    Petition
    In March 1988, Daniel E. Beren, John M. Elliot, and Edward, F. Mannino formed Walnut Street Four, a general partnership, to purchase and renovate an office building in Harrisburg, Pennsylvania. They borrowed more than $200,000 from Hamilton Bank to purchase the building and begin renovation. Disagreements among the partners arose when the renovation costs exceeded their estimates. When Beren was unable to obtain assistance from Elliot and Mannino regarding obtaining additional financing, the partnership quit paying its debts. Beren filed an involuntary petition to place the partnership into Chapter 7 Bankruptcy. The other partners objected to the bankruptcy filing. At the time of the filing, the partnership owed debts of more than $380,000 and had approximately $550 in the partnership bank account. Should the petition for involuntary bankruptcy be granted? Explain.

    Plan of Reorganization
    Richard P. Friese (Debtor) filed a voluntary petition for Chapter 11 bankruptcy. In May 1989, Debtor filed a plan of reorganization that divided his creditors into three classes. The first class, administrative creditors, were to be paid in full. The second class, unsecured creditors, were to receive 50% on their claims. The IRS was the third class. It was to receive $20,000 on confirmation and the balance in future payments. No creditors voted to accept the plan. The unsecured creditors are impaired because their legal, equitable, and contractual rights are being altered. Can the bankruptcy court confirm the debtor's plan of reorganization? Explain.

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    Solution Preview

    Hi,

    Let's take a closer look.

    1. Petition: In March 1988, Daniel E. Beren, John M. Elliot, and Edward, F. Mannino formed Walnut Street Four, a general partnership, to purchase and renovate an office building in Harrisburg, Pennsylvania. They borrowed more than $200,000 from Hamilton Bank to purchase the building and begin renovation. Disagreements among the partners arose when the renovation costs exceeded their estimates. When Beren was unable to obtain assistance from Elliot and Mannino regarding obtaining additional financing, the partnership quit paying its debts. Beren filed an involuntary petition (note: only creditors can file involuntary bankruptcy) to place the partnership into Chapter 7 Bankruptcy. The other partners objected to the bankruptcy filing. At the time of the filing, the partnership owed debts of more than $380,000 and had approximately $550 in the partnership bank account.

    Question: Should the petition for involuntary bankruptcy be granted? Explain.

    The petition for involuntary bankruptcy would probably not be granted by the courts, mainly because it is the creditor, not the debtor, who petitions the debtor into involuntary bankruptcy (Chapter 7 bankruptcy). Only the creditor(s) can file petitions for involuntary bankruptcy (under Chapter 7). Specifically, the Involuntary Bankruptcy Process involves the following steps:

    · Creditor files a petition and a summons with U.S. bankruptcy court clerk
    · Debtor has 20 days to file objections
    · If objections are filed the case goes to court
    · If there are no objections the bankruptcy proceeds (Involuntary Bankruptcy, n.d).

    However, in this scenario, Beren is the debtor, not the creditor. Involuntary bankruptcy occurs when an individual or organization is made bankrupt at the request of their creditors. Usually the indebted person or company files for bankruptcy but in the case of involuntary bankruptcy the creditor initiates the bankruptcy proceedings by filing a petition to a bankruptcy court so that they can eventually collect the funds they are owed by their debtor. In the case of Chapter 7 involuntary bankruptcy, the debtor (Beren, et al) would be ...

    Solution Summary

    This solution discusses two case scenarios in terms of bankruptcy and reorganization.

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