Quiz 24: Bankruptcy and Reorganization


Involuntary proceedings are allowed where the debtor is a partnership, and can be commenced by even a single petitioner (fewer than all partners) in this circumstance. The petition for involuntary bankruptcy is granted if • the debtor is not able to pay its debts when they become due, and there arises a unless a bonafide dispute as to liability • all the assets of the debtor have been substantially taken possession of by the receiver within 120 days before the petition. In this case, the first requirement for an involuntary bankruptcy had been met. One of the partners of the general partnership filed the petition for involuntary bankruptcy, and is authorized to commence the proceedings. Further, the petition for involuntary bankruptcy must be granted on the grounds that the partnership is unable to pay off its debts timely.

Facts of the Case The case is related to the concept of automatic stay. There was a person naming JFK who filed a voluntary petition for relief under Chapter 11 of the bankruptcy code. FIBG was the creditor of the amount $103000 to JFK.This amount of debt was increasing at the rate of $32.46 per day. First interstate had underlying collateral in form of debtor's residence near Basin, Wyoming in lieu of loan amount. The current worth of the house was close to $116000. The equity cushion of the debtor in the property was only 11.2 percent. More evidence with regard to property was mentioned below: • The Basin was currently going through a recession mode. • There was an ample supply of homes in the area, close to 90 odd homes were available for sale. • The market for real estate was on downward slope. • The condition of the house was going down day by day • The insurance on the property had lapsed. FIBG then moved for a relief from stay so that it could foreclose on the property and sell it. Issue concerning the case The issue is whether the court will grant a motion in favor of FIBG. Findings and Decision of the Court The district court ruled "that the Chapter 11 bankruptcy case should be dismissed ". The judge ruled that "the Court granted the motion to dismiss the Chapter 11 bankruptcy and an order of dismissal has or will be filed in that matter." The bankruptcy court "concluded, as a matter of law, that upon entry of the order of dismissal of the Chapter 11 case, the court would lose subject matter jurisdiction over the bankruptcy". The Court of Appeals further affirmed the decision of the district court.

No, debtor's student loan shall not be discharged in bankruptcy. As per strict government rules, a student is able to discharge in bankruptcy only in circumstances of "undue hardship". Undue hardship comprises of severe physical or mental ability, that too, properly proven. By looking at the debtor's income and expenses it can be concluded that he is left with certain amount to pay off instalments of student loans even after satisfying his basic needs. His income amounts to $1,000, while his expenses sum up to $903. Of these expenses, $130 worth of groceries is supplied by the debtor's parents. All the above evidences prove that nondischarge in bankruptcy is not going to cause "undue hardship" to the debtor. Thus, the debtor's student loan shall not be discharged in bankruptcy.

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