Business|Why Do People File for Bankruptcy?
Advertisement
SKIP ADVERTISEMENT
You have a preview view of this article while we are checking your access. When we have confirmed access, the full article content will load.
Supported by
SKIP ADVERTISEMENT
Rudy Giuliani filed for bankruptcy a day after a judge ordered him to start paying $148 million in damages to two former Georgia election workers.

The decision by Rudolph W. Giuliani to file for bankruptcy may buy the former New York mayor some time to deal with his debts — including the $148 million in damages he owes 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, it won’t necessarily make the jury’s award go away.
What does a personal bankruptcy filing do?
A personal bankruptcy, just like a corporate bankruptcy, usually puts a freeze on all pending litigation or attempts by creditors to collect on a debt. Given that, it is not too surprising that Mr. Giuliani filed for bankruptcy a day after a federal judge ordered him to begin making payments on the damages awarded to the former election workers. A filing can impair a person’s credit rating, making it hard for them to get a loan or buy property later.
What is the benefit of filing for bankruptcy?
Individuals file for bankruptcy when their debts exceed their assets and they see little hope of reversing that situation anytime soon. A bankruptcy filing is intended to provide breathing room for individuals to get their affairs in order and, usually, to develop a plan to pay creditors.
The goal of a bankruptcy is to give a debtor a “fresh start,” so that the individual is not weighed down by those liabilities forever. In the case of Mr. Giuliani, court papers broadly valued his assets at $1 million to $10 million and his debts at nearly $153 million.
Who are creditors in a personal bankruptcy?
Creditors are people, institutions or businesses to whom the individual owes money. In a bankruptcy filing, claims by creditors are usually ranked in order of who gets paid first. So-called secured creditors, who potentially top that list, are businesses or people who have a claim against a debtor that involves property. In a personal bankruptcy, the most common secured creditor is a bank holding a mortgage on a property.
All other claims in a bankruptcy are considered to be unsecured, but some are deemed as having “priority” status when it comes to getting paid. Typically, any taxes owed by an individual are classified as priority creditor claims. Mr. Giuliani, in his filing, reported owing nearly $1 million in income taxes to the Internal Revenue Service and New York State.
Advertisement
SKIP ADVERTISEMENT