Why do people file for bankruptcy?

Rudolph W. Giuliani’s decision to file for bankruptcy could give the former New York mayor some time to pay off his debts — including the $148 million in damages he owes to two former election workers in Georgia for spreading lies that they had tried to sway the 2020 election stealing from former President Donald J. Trump.

However, it does not necessarily mean that the jury prize disappears.

What does a personal bankruptcy filing do?

A personal bankruptcy, like a corporate bankruptcy, typically freezes any pending lawsuits or attempts by creditors to collect a debt. It is not surprising, then, that Mr. Giuliani filed for bankruptcy a day after a federal judge ordered him to begin paying damages awarded to former election workers. An application can affect a person’s credit rating, making it difficult for them to get a loan or buy real estate later.

What is the advantage of filing for bankruptcy?

Individuals file for bankruptcy when their debts exceed their assets and they see little hope of quickly reversing that situation. A bankruptcy filing is intended to give someone breathing room to get their affairs in order and, usually, develop a plan to pay creditors.

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

Who are creditors in a personal bankruptcy?

Creditors are people, institutions or companies to whom the individual owes money. In a bankruptcy filing, creditors’ claims are typically ranked based on who gets paid first. So-called secured creditors, who may be at the top of that list, are companies or persons that have a claim against a debtor relating to property. In a personal bankruptcy, the most common 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 getting paid. Typically, all taxes owed by an individual are classified as priority creditor claims. Mr. Giuliani reported in his filing that he owed nearly $1 million in income taxes to the Internal Revenue Service and New York State.

Most of an individual’s debts are listed as unsecured claims without priority status.

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

What happens to someone’s debts in the event of bankruptcy?

Most personal bankruptcies result in the establishment of a payment plan in which an individual will make payments to certain creditors at a reduced rate. Normally, creditors who are on a payment plan only get a portion of what is owed to them.

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

A mortgage can be discharged in bankruptcy, but the person usually loses title to his or her home. The same applies to a car loan. Child support, student loan payments, criminal fines, and income taxes generally cannot be discharged in bankruptcy.

Some civil judgments can be partially set aside. But a verdict involving malice cannot be made, and in Mr. Giuliani’s case, the jury award in favor of the former election workers could fall into that category.

Lindsey Simon, a professor of corporate law and bankruptcy at the University of Georgia School of Law, said Mr. Giuliani would likely be unable to receive the jury award. But she said the bankruptcy filing could give him time “to reach a settlement.”