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Authors

Karen E. Blaney

Abstract

Bankruptcy law regarding partnerships differs from the law pertaining to individuals and corporations. Only a partnership can be involuntarily petitioned into bankruptcy by individuals within the organization. Involuntary petitions can be used by general partners as bargaining chips, and may encourage partners who can personally benefit from filing to do so, even if the act would be detrimental to the partnership. Under present bankruptcy law, an involuntary petition may be commenced against a partnership by fewer than all of the general partners in such partnership. In comparison to prior bankruptcy provisions governing a partner's involuntary petition against the partnership, the "generally not paying" test is the most lenient to date. Because a partner's filing against the partnership under the "generally not paying" test entangles such enormous bankruptcy court participation in mediating partnership disputes and in evaluating possible ill will of filing partners, the Code, creditors and non-filing partners would be better served with a stricter filing standard for involuntary petitions against the partnership. Congress, therefore, should enact a new filing standard for these types of petitions, requiring two things: first, that partners filing the involuntary petition have capital account balances totaling at least ten percent of the total capital of the partnership; and second, that the partnership must be insolvent under a strict equity insolvency test.

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