11 U.S.C. § 723 — Rights of partnership trustee against gen-

Page 200 TITLE 11—BANKRUPTCY § 723 thorizes an individual debtor to redeem tangible per- sonal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt. It applies only if the debtor’s interest in the property is exempt or has been abandoned. The right to redeem extends to the whole of the prop- erty, not just the debtor’s exempt interest in it. Thus, for example, if a debtor owned a $2,000 car, subject to a $1,200 lien, the debtor could exempt his $800 interest in the car. The debtor is permitted a $1,500 exemption in a car, proposed 11 U.S.C. 522(d)(2). This section per- mits him to pay the holder of the lien $1,200 and redeem the entire car, not just the remaining $700 of his exemp- tion. The redemption is accomplished by paying the holder of the lien the amount of the allowed claim se- cured by the lien. The provision amounts to a right of first refusal for the debtor in consumer goods that might otherwise be repossessed. The right of redemp- tion under this section is not waivable. Editorial Notes AMENDMENTS 2005—Pub. L. 109–8 inserted ‘‘in full at the time of re- demption’’ before period at end. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. § 723. Rights of partnership trustee against gen- eral 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 part- nership and with respect to which a general partner of the partnership is personally liable, the trustee shall have a claim against such gen- eral partner to the extent that under applicable nonbankruptcy law such general partner is per- sonally 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 de- termination 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) 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. Notwith- standing 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 part- nership. The claim of the trustee under this sub- section is entitled to distribution in such part- ner’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 sub- section (c) of this section is greater than any de- ficiency not recovered under subsection (b) of this section, the court, after notice and a hear- ing, shall determine an equitable distribution of the surplus so recovered, and the trustee shall distribute such surplus to the estates of the gen- eral partners in such partnership according to such determination. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98–353, title III, § 476, July 10, 1984, 98 Stat. 381; Pub. L. 103–394, title II, § 212, Oct. 22, 1994, 108 Stat. 4125; Pub. L. 111–327, § 2(a)(26), Dec. 22, 2010, 124 Stat. 3560.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 723(c) of the House amendment is a com- promise 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, sec- tions 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 sec- tions 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 admin- istration, denied partnership creditors their rights against general partners by permitting general part- ners’ individual creditors to share in their estates first to the exclusion of partnership creditors. The result under this section more closely tracks generally appli- cable partnership law, without a significant adminis- trative burden. Subsection (a) specifies that each general partner in a partnership debtor is liable to the partnership’s trust- ee 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 defi- ciency. 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 part- nership 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 Page 201 TITLE 11—BANKRUPTCY § 724 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. Editorial Notes AMENDMENTS 2010—Subsec. (c). Pub. L. 111–327 substituted ‘‘The trustee has’’ for ‘‘Notwithstanding section 728(c) of this title, the trustee has’’. 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, § 476, substituted pro- visions 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, § 476(b), substituted ‘‘such partner’s case’’ for ‘‘such case’’ in two places, ‘‘by prop- erty of such partnership’’ for ‘‘be property of such part- nership’’, and ‘‘a kind specified in such section’’ for ‘‘the kind specified in such section’’. Statutory Notes and Related Subsidiaries 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. § 724. Treatment of certain liens (a) The trustee may avoid a lien that secures a claim of a kind specified in section 726(a)(4) of this title. (b) Property in which the estate has an inter- est and that is subject to a lien that is not avoidable under this title (other than to the ex- tent that there is a properly perfected unavoid- able tax lien arising in connection with an ad valorem tax on real or personal property of the estate) and that secures an allowed claim for a tax, or proceeds of such property, shall be dis- tributed— (1) first, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is senior to such tax lien; (2) second, to any holder of a claim of a kind specified in section 507(a)(1)(C) or 507(a)(2) (ex- cept that such expenses under each such sec- tion, other than claims for wages, salaries, or commissions that arise after the date of the filing of the petition, shall be limited to ex- penses incurred under this chapter and shall not include expenses incurred under chapter 11 of this title), 507(a)(1)(A), 507(a)(1)(B), 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this title, to the extent of the amount of such al- lowed tax claim that is secured by such tax lien; (3) third, to the holder of such tax lien, to any extent that such holder’s allowed tax claim that is secured by such tax lien exceeds any amount distributed under paragraph (2) of this subsection; (4) fourth, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is junior to such tax lien; (5) fifth, to the holder of such tax lien, to the extent that such holder’s allowed claim se- cured by such tax lien is not paid under para- graph (3) of this subsection; and (6) sixth, to the estate. (c) If more than one holder of a claim is enti- tled to distribution under a particular para- graph of subsection (b) of this section, distribu- tion to such holders under such paragraph shall be in the same order as distribution to such holders would have been other than under this section. (d) A statutory lien the priority of which is de- termined in the same manner as the priority of a tax lien under section 6323 of the Internal Rev- enue Code of 1986 shall be treated under sub- section (b) of this section the same as if such lien were a tax lien. (e) Before subordinating a tax lien on real or personal property of the estate, the trustee shall— (1) exhaust the unencumbered assets of the estate; and (2) in a manner consistent with section 506(c), recover from property securing an al- lowed secured claim the reasonable, necessary costs and expenses of preserving or disposing of such property. (f) Notwithstanding the exclusion of ad valo- rem tax liens under this section and subject to the requirements of subsection (e), the following may be paid from property of the estate which secures a tax lien, or the proceeds of such prop- erty: (1) Claims for wages, salaries, and commis- sions that are entitled to priority under sec- tion 507(a)(4). (2) Claims for contributions to an employee benefit plan entitled to priority under section 507(a)(5). (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2607; Pub. L. 98–353, title III, § 477, July 10, 1984, 98 Stat. 381; Pub. L. 99–554, title II, § 283(r), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 103–394, title III, § 304(h)(4), title V, § 501(d)(23), Oct. 22, 1994, 108 Stat. 4134, 4146; Pub. L. 109–8, title VII, § 701(a), Apr. 20, 2005, 119 Stat. 124; Pub. L. 111–327, § 2(a)(27), Dec. 22, 2010, 124 Stat. 3560.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 724 of the House amendment adopts the pro- vision taken in the House bill and rejects the provision taken in the Senate amendment. In effect, a tax claim secured by a lien is treated as a claim between the fifth and sixth priority in a case under chapter 7 rather than as a secured claim. Treatment of certain liens: The House amendment modifies present law by requiring the subordination of tax liens on both real and personal property to the pay- ment of claims having a priority. This means that as-