Sub Chapter II Collection, Liquidation and Distribution of the Estate
Sec. 723. Rights of partnership trustee against general partners
(a) If there is a deficiency of property of the estate to pay in
full all claims which are allowed in a case under this chapter
concerning a partnership and with respect to which a general partner of
the partnership is personally liable, the trustee shall have a claim
against such general partner to the extent that under applicable
nonbankruptcy law such general partner is personally liable for such
(b) To the extent practicable, the trustee shall first seek recovery
of such deficiency from any general partner in such partnership that is
not a debtor in a case under this title. Pending determination of such
deficiency, the court may order any such partner to provide the estate
with indemnity for, or assurance of payment of, any deficiency
recoverable from such partner, or not to dispose of property.
(c) Notwithstanding section 728(c) of this title, the trustee has a
claim against the estate of each general partner in such partnership
that is a debtor in a case under this title for the full amount of all
claims of creditors allowed in the case concerning such partnership.
Notwithstanding section 502 of this title, there shall not be allowed in
such partner's case a claim against such partner on which both such
partner and such partnership are liable, except to any extent that such
claim is secured only by property of such partner and not by property of
such partnership. The claim of the trustee under this subsection is
entitled to distribution in such partner's case under section 726(a) of
this title the same as any other claim of a kind specified in such
(d) If the aggregate that the trustee recovers from the estates of
general partners under subsection (c) of this section is greater than
any deficiency not recovered under subsection (b) of this section, the
court, after notice and a hearing, shall determine an equitable
distribution of the surplus so recovered, and the trustee shall
distribute such surplus to the estates of the general partners in such
partnership according to such determination.
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98-353, title III,
Sec. 476, July 10, 1984, 98 Stat. 381; Pub. L. 103-394, title II,
Sec. 212, Oct. 22, 1994, 108 Stat. 4125.)
Historical and Revision Notes
Section 723(c) of the House amendment is a compromise between
similar provisions contained in the House bill and Senate amendment. The
section makes clear that the trustee of a partnership has a claim
against each general partner for the full amount of all claims of
creditors allowed in the case concerning the partnership. By restricting
the trustee's rights to claims of ``creditors,'' the trustee of the
partnership will not have a claim against the general partners for
administrative expenses or claims allowed in the case concerning the
partnership. As under present law, sections of the Bankruptcy Act
[former title 11] applying to codebtors and sureties apply to the
relationship of a partner with respect to a partnership debtor. See
sections 501(b), 502(e), 506(d)(2), 509, 524(d), and 1301 of title 11.
senate report no. 95-989
This section is a significant departure from present law. It repeals
the jingle rule, which, for ease of administration, denied partnership
creditors their rights against general partners by permitting general
partners' individual creditors to share in their estates first to the
exclusion of partnership creditors. The result under this section more
closely tracks generally applicable partnership law, without a
significant administrative burden.
Subsection (a) specifies that each general partner in a partnership
debtor is liable to the partnership's trustee for any deficiency of
partnership property to pay in full all administrative expenses and all
claims against the partnership.
Subsection (b) requires the trustee to seek recovery of the
deficiency from any general partner that is not a debtor in a bankruptcy
case. The court is empowered to order that partner to indemnify the
estate or not to dispose of property pending a determination of the
deficiency. The language of the subsection is directed to cases under
the bankruptcy code. However, if, during the early stages of the
transition period, a partner in a partnership is proceeding under the
Bankruptcy Act [former title 11] while the partnership is proceeding
under the bankruptcy code, the trustee should not first seek recovery
against the Bankruptcy Act partner. Rather, the Bankruptcy Act partner
should be deemed for the purposes of this section and the rights of the
trustee to be proceeding under title 11.
Subsection (c) requires the partnership trustee to seek recovery of
the full amount of the deficiency from the estate of each general
partner that is a debtor in a bankruptcy case. The trustee will share
equally with the partners' individual creditors in the assets of the
partners' estates. Claims of partnership creditors who may have filed
against the partner will be disallowed to avoid double counting.
Subsection (d) provides for the case where the total recovery from
all of the bankrupt general partners is greater than the deficiency of
which the trustee sought recovery. This case would most likely occur for
a partnership with a large number of general partners. If the situation
arises, the court is required to determine an equitable redistribution
of the surplus to the estate of the general partners. The determination
will be based on factors such as the relative liability of each of the
general partners under the partnership agreement and the relative rights
of each of the general partners in the profits of the enterprise under
the partnership agreement.
1994--Subsec. (a). Pub. L. 103-394 substituted ``to the extent that
under applicable nonbankruptcy law such general partner is personally
liable for such deficiency'' for ``for the full amount of the
1984--Subsec. (a). Pub. L. 98-353, Sec. 476, substituted provisions
that the trustee shall have a claim for the full amount of the
deficiency against a general partner who is personally liable with
respect to claims concerning partnerships which are allowed in a case
under this chapter, for provisions that each general partner in the
partnership would be liable to the trustee for the full amount of such
Subsec. (c). Pub. L. 98-353, Sec. 476(b), substituted ``such
partner's case'' for ``such case'' in two places, ``by property of such
partnership'' for ``be property of such partnership'', and ``a kind
specified in such section'' for ``the kind specified in such section''.
Effective Date of 1994 Amendment
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before Oct.
22, 1994, see section 702 of Pub. L. 103-394, set out as a note under
section 101 of this title.
Effective Date of 1984 Amendment
Amendment by Pub. L. 98-353 effective with respect to cases filed 90
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out
as a note under section 101 of this title.
Section Referred to in Other Sections
This section is referred to in section 541 of this title.