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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To determine whether the petition for involuntary bankruptcy should be granted in the first scenario, we need to consider the requirements for such a petition.
Involuntary bankruptcy is a process where creditors initiate bankruptcy proceedings against a debtor who is not willing to file for bankruptcy. In this case, Beren filed an involuntary petition to place the partnership into Chapter 7 bankruptcy.
Under the United States Bankruptcy Code, there are certain criteria that must be met for an involuntary bankruptcy petition to be granted:
1. The debtor must have at least 12 creditors: In this case, the partnership owed more than $380,000, so it is reasonable to assume that there were at least 12 creditors involved.
2. The debtor must have at least three creditors whose claims are not contingent or the subject of a bona fide dispute: If the debts of the partnership were owed to multiple creditors and were not disputed, this criterion would also be met.
3. The debtor must have debts exceeding a certain threshold: In March 1988, the partnership borrowed more than $200,000, suggesting that the debt threshold has been met.
Based on the presented information, it appears that the petition for involuntary bankruptcy should be granted. However, it is important to consult legal counsel and review specific bankruptcy laws and regulations in the relevant jurisdiction to obtain a definitive answer.