Rudy Giuliani Risks Losing Control of His Money in Bankruptcy

Rudolph Giuliani is staring down a massive change of course in his bankruptcy that puts his control of his finances at risk, and poses a substantial impact to his daily life.

His creditors’ request to appoint a trustee to take over administration of his Chapter 11 case is an uncommon step that reflects months of discontent from the people to whom Giuliani owes money. They repeatedly denounced his purported lack of cooperation with bankruptcy rules and accused him of hiding assets that could be used to help pay down his debts.

For Giuliani, the stakes are high. A trustee could freeze his bank accounts, undo transactions, and eventually recommend his estate be sold off to pay more than $150 million in debt.

His creditors have also accused him of not disclosing expenses and have sought more info about his new coffee venture.

Shortly after filing Chapter 11, the former New York City mayor and Donald Trump lawyer reported having $14,000 in a checking account and $351 in a savings account. He also reported more than $1 million in IRAs.

Yet in January, he spent nearly $120,000, he disclosed in bankruptcy court papers.

“At bottom, he’s facing loss of control,” Arizona State University bankruptcy law professor Laura Coordes said. “And loss of control not only of what’s going on currently in terms of spending and that sort of thing, but loss of control as far as how his future is shaped.”

The appointment of a trustee would cause him to take a back seat in his own financial restructuring. Steering the bankruptcy process is a key benefit of Chapter 11 because it allows debtors to negotiate with creditors and work to shape their own financial path.

“Mr. Giuliani would continue to live his life going forward, but he would have no control of his assets and business interests,” Soneet Kapila, of KapilaMukamal LLP, a bankruptcy trustee and acting chairman of the American Bankruptcy Institute, said.

A bankruptcy judge, who has already expressed frustration with Giuliani over the lack of progress in his case, will consider whether to grant the motion at a June 17 hearing. A lawyer for Giuliani didn’t immediately respond to a request for comment.

‘Very Intrusive’

One of the first steps a trustee would take would be to freeze Giuliani’s bank accounts, said Russell D. Garrett, of Jordan Ramis PC, who has represented trustees and also worked as one himself.

If the accounts are deemed to be property of Giuliani’s estate before he filed for bankruptcy, the trustee can take control of them to prevent them from being drained, Garrett said.

Creditors, including one of the Georgia election workers to whom he owes a $148 million defamation judgment, have complained about Giuliani’s exorbitant spending. He reported spending $20,000 in February, $28,000 in March and $30,000 in April.

Though he has said Social Security payments are his only consistent source of income, Giuliani’s creditors allege that he’s been “squirreling away tens of thousands of dollars each month in his wholly owned companies.”

Freezing bank accounts would be part of a trustee’s broader effort to preserve the value of Giuliani’s assets to help pay creditors. The trustee would also try to find money elsewhere, likely probing Giuliani’s finances and gathering years of financial records, Garrett, president-elect of the National Association of Bankruptcy Trustees, said.

“That could be very intrusive,” he said.

Debtors usually aren’t eager to hand that kind of information over, he added.

“That’s the kind of sensitive information the debtor is going to be most interested in protecting,” Garrett said.

In Giuliani’s case, creditors have repeatedly complained that he has been slow to file mandatory monthly reports of his assets and income. They’ve also moved to force a sale of his luxury condo in Florida.

Giuliani’s own lawyers have indicated that they’ve had difficulty obtaining financial information from him.

In a May 15 email, Rachel Biblo Block, an Akin Gump Strauss Hauer & Feld LLP attorney representing creditors, asked Giuliani’s lawyers for information about a new coffee venture he announced on social media.

“We saw the same thing and have requested information, and a cup of coffee,” Heath Berger of Berger, Fischoff, Shumer, Wexler & Goodman, LLP, replied in an email disclosed in court filings.

Challenges Ahead

The creditors’ call for a trustee sets up a probable courtroom fight with Giuliani, who will very likely object.

Their motion comes under a section of the bankruptcy code that says a court shall appoint a trustee if certain conditions are met. So far, Giuliani has met many of those standards, including dishonesty, incompetence, gross mismanagement, and inadequate record keeping, creditors said.

Giuliani could argue that the motion is drastic and that creditors have failed to show necessary cause for the judge to appoint a trustee.

“When you file a regular 11 like he did, it’s really unusual that you’d even have a trustee appointed,” bankruptcy trustee Kara Gendron, of Mott & Gendron Law, said.

The mere existence of the trustee, if appointed, could change Giuliani’s behavior, forcing him to confront the stakes of his case, Gendron said. It could also bring stability to what has so far been an unruly process.

“Hopefully the trustee can also bring some organization into it,” Gendron said.

Part of a trustee’s job would be to pursue a consensual plan with Giuliani’s creditors, including the two Georgia election workers he falsely accused of rigging 2020 presidential election results. A lawyer for Giuliani said during a recent court hearing that he would reach out to the election workers about a settlement.

After examining his assets, taking control of his finances, and negotiating with creditors, the trustee could ultimately decide the best course is for Giuliani to sell his assets and distribute the proceeds to creditors, Coordes, at Arizona State, said.

“When you have that kind of power, you can make the debtor feel it,” she said.

The case is Rudolph W. Giuliani, Bankr. S.D.N.Y., No. 23-12055, 5/28/24.