Giuliani: Life in Bankruptcy

The news was that Rudolph Giuliani would pay a big award to the women he defamed.

It isn't that simple. 

He lives well and spends money like before. He may die rich. His victims wait.

It must have seemed easy and risk-free for Rudolph Giuliani in the months after the 2020 election. Make a couple of  election workers -- Black, female, poor, unknown -- into villains. Tell the world they stole the 2020 election. Name them. Point them out. They were "nobodies" and Rudolph Giuliani was a world-famous lawyer. 

They are not nobodies. Their names are Ruby Freeman and Wandrea "Shaye" Moss. Giuliani defamed them intentionally and repeatedly. A jury found that Giuliani did them an enormous wrong. 

I asked Conde Cox whether Giuliani would ever pay a price for his actions. Cox is a commercial and business disputes lawyer. He is an expert in bankruptcies. He has been a member of the bar of the U.S. Supreme Court for 29 years. He is the immediate past president of the Federal Bar Association—Oregon Chapter. For many years he has been rated a Thomson-Reuters "Super Lawyer" in the field of business bankruptcy. He carries out his national law practice from Ashland, Oregon.

Conde Cox

Guest Post by Conde Cox

When a company or individual files Chapter 11, all attempts by creditors to collect debts must stop because of the “automatic stay” imposed by Section 362 of the Federal Bankruptcy Code. 

Rudy Giuliani filed Chapter 11 to protect his assets from seizure by his creditors, mainly the two Georgia women who only days before the bankruptcy filing obtained a $146 million judgment against him. Most Chapter 11 cases are filed to get the automatic stay against foreclosure, asset seizure and all other creditor-collection actions. For example, Texaco did the same thing to stop Pennzoil (which had a $10 billion judgment against Texaco) from using the judgment to seize Texaco’s assets. 

Although the automatic stay restrains the actions of creditors, there are very few constraints imposed upon the activities of the debtor for the first year or so. For example, the debtor may continue “to operate in the ordinary course of business.” The only constraint on his financial activities is that he can not use “cash collateral” and that he cannot conduct business “outside of the ordinary course.” In this case, there is no cash collateral, thereby allowing him to spend the approximately $40,000 every month that he collects from his monthly Social Security check, his monthly pension income, and from his regular withdrawals from his IRA accounts. The court will likely approve his use of that unencumbered cash to pay for “personal care,” household utilities, and care of his mother-in-law, considering them “ordinary course of business.” Outside the ordinary course would include such things as luxury trips, gambling, investment in some new business, or hush money payments to porn stars. This could continue for a year.

Encumbered assets, such as his townhouse (on which there is a mortgage), cannot be sold without court approval. If it is sold, the sales proceeds cannot be spent, even in the ordinary course of business.

A few months after filing the Chapter 11 case, the court will examine whether the debtor has made progress in a “plan of reorganization.” In most cases, during the year or so between the date of filing Chapter 11 and the date the plan becomes effective, the debtor can spend his unencumbered cash in the ordinary course of business.

Whether or not Giuliani plan is confirmed will depend on whether creditors would get more than they would if he fully liquidated his assets. Individual debtors can keep “exempt assets,” which generally means Social Security, pensions, IRA accounts, and some of the equity in their home. The amount of such protected home equity and other exempt property (motor vehicles, personal household assets, etc.) varies greatly from state to state. In New York, where Giuliani resides, the maximum residential homestead exemption is $150,000, which means nearly all the equity (minus that $150,000) in his Manhattan townhouse will eventually become available for creditors. 

If a plan is not confirmed in the next year or so, the bankruptcy court could dismiss the Chapter 11 case.That would permit creditors to go back to seizing assets, or, more likely, convert the case to a liquidation under Chapter 7. In Chapter 7, a bankruptcy trustee” can sell all non-exempt property he owns and creditors can be paid. He would then receive a bankruptcy discharge of all dischargeable debts. But the $146 million intentional tort/fraud-based judgment would likely not be dischargeable, which means Freeman and Moss could start chasing Giuliani again. Debts arising from the intentional tort of defamation cannot be charged in bankruptcy.

After liquidation of all of his non-exempt assets, their creditors get their prorata share of the liquidated assets. For example, if the total creditor claims are $200 million, and if there is $20 million in total post-liquidation cash, that would leave a 10% payout for creditors. Freeman and Moss would eventually receive about $14 million on their $146 million judgment. They could try to collect the unpaid balance from Rudy for the rest of this life (and against his estate after he passes.) 

There are no “public defenders” for debtors in bankruptcy cases. Giuliani's lawyers have an “administrative priority” right to be paid first, ahead of all other creditors. Bankruptcy courts scrutinize closely all fee requests filed by the lawyers.

Giuliani will probably try to drag this case out, avoid dismissal, avoid conversion to Chapter 7, delay proposing a plan, and delay implementing a plan, (because payments to creditors must begin when the plan is confirmed.) Possibly his prostate cancer will kill him before judicial process from Georgia does.

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