Why do people declare bankruptcy?

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Rudolph W. Giuliani's decision to declare bankruptcy may give the former New York City mayor some time to address his debts, including the 148 million dollars in damages owes it to two former Georgia election workers for spreading lies that they had tried to steal the 2020 election from former President Donald J. Trump.

However, this will not necessarily make the jury award disappear.

What does a personal bankruptcy filing do?

A personal bankruptcy, like a corporate bankruptcy, generally freezes all pending litigation or attempts by creditors to collect a debt. With this in mind, it's not too surprising that Giuliani filed for bankruptcy a day after a federal judge ordered him to start paying settlements awarded to former election workers. A filing can affect a person's credit score, making it difficult for them to obtain a loan or purchase property later.

What is the benefit of filing for bankruptcy?

People file for bankruptcy when their debts exceed their assets and they see little hope of reversing that situation in the short term. A bankruptcy filing is intended to provide breathing room for a person to get their affairs in order and usually develop a plan to pay creditors.

The ultimate goal of a bankruptcy is to give the debtor a “fresh start” so that the individual is not burdened by those responsibilities forever. In Mr. Giuliani's case, court documents broadly valued his assets at between $1 million and $10 million and his debts at nearly $153 million.

Who are the creditors in a personal bankruptcy?

Creditors are people, institutions or companies to whom the individual owes money. In a bankruptcy filing, creditors' claims are generally ranked in order of who receives payment first. The so-called secured creditors, who potentially top that list, They are companies or people who have a claim against a debtor that involves property. In a personal bankruptcy, the most common secured creditor is a bank that has a mortgage on a property.

All other claims in a bankruptcy are considered unsecured, but some are considered to have “priority” status when it comes to receiving payment. Generally, all taxes owed by an individual are classified as priority creditor claims. Giuliani, in his filing, reported that he owed nearly $1 million in income taxes to the Internal Revenue Service and the state of New York.

Most of a person's debts will be listed as unsecured claims without priority status.

Mr. Giuliani did not list any secured claims. His filing listed a number of unsecured and non-priority debts, including a jury award of $148 million. He also listed debts of approximately $3 million owed to attorneys as non-priority and unsecured claims.

What happens to the debts of a bankrupt person?

Most personal bankruptcies result in the formulation of a payment plan in which an individual will make payments to certain creditors at a reduced rate. Typically, creditors included in a payment plan will only receive a portion of what they are owed.

Some debts in bankruptcy can be discharged, meaning the person is not required to make payments on them. These typically include credit card debt, medical debt, and loans not secured by property.

A mortgage can be discharged in bankruptcy, but typically the individual will lose title to their home. The same applies to a car loan. Child support, student loan payments, criminal penalties, and income taxes generally cannot be discharged in bankruptcy.

Some civil judgments can be partially vacated. But a conviction involving an act of malice cannot be overturned, and in Mr. Giuliani's case, the jury's ruling in favor of the former election workers may fall into that category.

Lindsey Simon, a professor of corporate and bankruptcy law at the University of Georgia School of Law, said Giuliani probably won't be able to follow through with the jury's award. But she said filing for bankruptcy could give her time “to come to some agreement.”



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