Bankruptcy is usually a legally declaration of individuals or organizations inability to pay their creditors. This request is done by the creditors in order for them to recoup a fraction of what they are owed by an individual or an organization. However, bankruptcy can also be initiated by the individuals themselves or organization in case they feel that they are not capable of paying their debts.
In simple words, an individual or an organization is insolvent or bankrupt if it cannot pay his debts or discharge his liabilities on the due date. The creditors or the debtors themselves may present a petition to the court that a receiving order should be made.
For this case, Beren took the correct step of filing an involuntary petition with the court of law to declare their partnership bankrupt as indicated in chapter 7. Indeed the partnership had exceeded their estimate of purchasing and renovating the office building to a point of accumulating debts amounting to $380,000 against the $200,000 they had set aside for this and effort by Beren to convince other partners to seek additional funds bore no fruits.
On the other had Elliot and Mannino objected to Beren's idea of involuntary bankruptcy under Chapter 7. ...
Under Chapter 7, there is an alternative relief for the debtors to avoid the issue of their partnership being liquidated and continue doing it business. For this case the involuntary petition filed by Beren may not be granted by the court which was done against the wish of Elliot and Mannino. (U.S Courts, 2006)
Elliot and Mannino should file a petition under chapter 11 of the bankruptcy code. The debtors may argue that they would pay the debts if the payment period is extended. They may also argue that they may have a comprehensive reorganization. 1
The main objective of bankruptcy is to give an honest individual a clean bill of life or a fresh start after discharging certain debts. Usually the there is no responsibility of liabilities already discharged on the side of the debtor.
Explaining Whether the Bankruptcy Court Confirms the Debtor's Plan of Reorganization
A voluntary petition was filed by Richard under chapter 11. He filed a reorganization plan that divided his creditors into three classes. The three classes were: administrative creditors which were to be paid in full; the second class were unsecured creditors which were to receive 50% on their claims and the third class was the IRS which was to receive $20,000 on confirmation and the balance in future payments. There was no creditor who voted to accept this arrangement and the unsecured creditors were impaired since their legal, equitable, and contractual rights were being altered.
To keep the firm running, debtors propose a plan of reorganization in order for them to pay their creditors in a considerable period of time. A