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Bankruptcy and reorganization Essay


Bankruptcy may be a procedure of settling misunderstanding between creditors and the shareholders of various organizations. It facilitates a room for the selling of debtors’ assets so as to settle debts. The law of bankruptcy under chapter 11 gives a debtor opportunity to give a plan of how to repay its debts.

Literature review

Law of personal bankruptcy aims to help people who cannot meet their obligations of repaying debts. When filed under the seventh chapter, they may avoid paying their debts in full. This law motivates people to borrow since a cover is provided for incase they default clearing their debts. Also, lenders are motivated to decrease supply made in credit and hike the cost of lending.


Partnership is usually formed when people intending to start a joint business venture agrees and comply with the rules and regulations given under the partnership act. It must be registered by the registrar of partnership companies. This therefore means that the Walnut Street Four was legally in business. Bankruptcy is a situation whereby people owe the bank more than what they can pay, hence Walnut is liable for bankruptcy. In most cases, bankruptcy takes two forms, either chapter 11 where the partners intends to remain

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in business or chapter 7, where the concerned ought to dissolve the business (Steingold, 2009).


The petition filed by Beren falls under chapter 7 of bankruptcy since the partners seems to dissolve. This petition should be granted since the partners involved have violated the terms of agreement between them.i.e repayments of debts. The assets of the partners should be liquidated and sold by an independent individual, and the capital obtained from the sales used to repay debts. Under this chapter, Daniel E. Beren, John M. Elliot, and Edward, F. Mannino remains legally liable to the partnership debts despite their disagreements. The bank that gave the funds to them is not part of their disputes hence its capital must be compensated. In addition, the bank did not lend money to an individual but to Walnut Company.

The amount in their partnership account is not adequate to repay the debts hence Mr.Beren is justified to file a petition against his partners since he cannot be able to repay debts single handedly. In so doing his future liability is limited incase the creditors comes up with complaints later on. This does not mean that creditors will not be in a position to sue the partnership business, but it will be of no impact to the creditors since the partnership would have dissolved, hence no one will be liable to it. In petitioning also an involuntary bankruptcy, Beren will have in a way informed their creditors that there is nothing else left for them to claim in future since its operations comes to a halt (Elias, Renauer & Leonard, 2009).

Reorganization bankruptcy is where an individual suggests a repayment plan to its creditors before a case is filed. This plan aims to keep the business operational and also to pay its creditors over time. It is contained in chapter 11 of bankruptcy law, and this is where people seek relief. In the process of filing this plan, a debtor is required, by court of law, to present the statement of its assets and liabilities, current incomes and expenditures and also statement of its financial position.

Place of residence of the debtor is also very essential. A committee of creditors is formed whose function is to oversee the debtors’ repayment plans and transparency. Upon successfully filing the petition, creditors whose obligations are not met are allowed to vote. A plan cannot be confirmed if the creditors reject it (Newton, 2009).

From the case filed by Richard P. Friese, bankruptcy court cannot confirm the plan for reorganization since the petition is voted against by the creditors. The unsecured creditor’s obligations have not been met by the debtor’s schedule of repayment, thus making them reject the petition .The court does not go contrary to the decision of the unsecured creditors since it provides for voting after the filing of the petition (Delaney ,1999).


To sum up, it is known that partnerships are generally liable towards payments of partnership debts. General partners are totally  and personally liable to the debts owed.


Delaney, J.K. (1999). Strategic Bankruptcy: How Corporations and Creditors Use

Chapter 11 to Their Advantage. University of California press

Elias, S. Renauer, A. & Leonard, R. (2009). How to File for Chapter 7 Bankruptcy.16th

  1. Nolo

Newton, G.W. (2009). Bankruptcy and Insolvency Accounting: Practice and Procedure

7th ed. John Wiley and sons

Steingold, F. (2009). Legal Guide for Starting & Running a Small Business.11th ed. Nolo

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