Not all unsecured (non-collateralized) debts can be discharged in bankruptcy. For example, debts related to alimony, child support, larceny, embezzlement, and fraud, among others, are typically “non-dischargeable.” Title 11 United States Code Section 523(a)(2).

For example, 11 USC Section 523(a)(2)(C)(6) (the Bankruptcy Code) provides that there is no cancellation (“discharge”) of a debt that results from “willful and malicious injury by the debtor to another entity or to the property of another entity.” [emphasis added] The term “entity” includes an individual or natural person. (Wex Legal Dictionary, Cornell University Law School’s Legal Information Institute).

In other words, where a debt to a person is the result of malicious conduct, that debt is not going to be discharged by the bankruptcy.

In the recent trial of Ruby Freeman and her daughter’s allegations of defamation against Dornald Trump attorney Rudy Giuliani, Judge Beryl Howel ruled that “It is further DECLARED that defendant’s conduct was intentional, malicious, wanton, and willful, such that plaintiffs are entitled to punitive damages.”

Final Judgment of December 18, 2023, Case No. Civil Action No. 21-3354 (BAH).

As a result, it appears that Giuliani will be stuck with the judgment of $148 million against him, even though he filed for bankruptcy on December 20, 2023.  Even assuming that the bankruptcy court approves a Giuliani Chapter 11 bankruptcy “Plan of Reorganization,” that plan only affects the timing of payment, and not the existence in full, of the Freemans’ $148MM judgment, because this debt is non-dischargeable. Footnote 1, “Chapter 11 – Bankruptcy Basics,” Administrative Office of the US Courts (2023).

The bankruptcy court has indicated that it will hold its proceedings partially in abeyance, while Giuliani appeals the Freemans’ verdict, but what is firm, at least for now, is that the federal trial court has held that Giuliani acted with malice against the Freemans. The Freemans’ judgment will not disappear in the Bankruptcy Court.

 

PRESENTED AS A COMMENTARY ON A MATTER OF PUBLIC INTEREST, AND NOT AS LEGAL ADVICE

Former Mayor Rudy Giuliani of New York City speaking to supporters at an immigration policy speech hosted by Donald Trump at the Phoenix Convention Center in Phoenix, Arizona. Photo Credit: Gage Skidmore

 

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