Bankruptcy Forms: Filing Bankruptcy Chapter 7 Bankruptcy Software Chapter 13

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TITLE 11–BANKRUPTCY

CHAPTER 7–LIQUIDATION

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 
deficiency.
    (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 
section.
    (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

                         legislative statements

    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.


                               Amendments

    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 
deficiency''.
    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 
deficiency.
    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.



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Legal Resource Center: United States Code TITLE 11 Filing Bankruptcy Forms Software