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t appears that Teresa and Joe Giudice’s bankruptcy fraud case might not yet be over.

Giudice’s Bankruptcy Not Over Yet

While it seems like the case should be over – Teresa just concluded her year in federal prison for bankruptcy fraud, and husband Joe is currently serving a 41-month sentence at the Federal Correctional Institution in Fort Dix – in a recent turn of events, the lawyer representing the Giudice’s creditors are looking to reopen the bankruptcy proceedings. This is all coming in light of the fact that Teresa is in the middle of a legal malpractice suit against the bankruptcy attorney that represented her in court, attorney James Kridel of Clifton.

Should Teresa win her pending suit against Kridel, her creditors would be entitled to receive a cut of any “meaningful” dividends obtained in the win, according to a new motion filed by John Sywilok of Hackensack.

Giudice’s Bankruptcy Fraud

The Giudice’s, who were stars on reality show “Real Housewives of New Jersey,” filed for bankruptcy in 2010. Sywilok was assigned as the couple’s bankruptcy trustee and he alleged that the couple left out a number of assets as well as sources of income in the papers they initially filed. These assets included Teresa’s reality show salary, rental income from her Lincoln Park property, and a Maserati. Eventually the couple agreed that they would abandon the bankruptcy discharge they received.

Discharge is the ultimate goal of bankruptcy. It bars your creditors from ever attempting to collect debts from you and you alone, and does not eliminate the debt itself. So, for example, if you are one of the co-signers on a home loan and you file for bankruptcy, the debt is not wiped out and the lender can still seek to collect the debt from your co-signer.

While the couple decided to abandon their discharge, later on federal prosecutors filed a bankruptcy fraud case against them in addition to charges of conspiracy to commit wire and mail fraud.

When the case was formally closed out in 2014 by Sywilok, he alleged that the couple had only satisfied $7,500 of their debts and still owed creditors $13.4 million.

You must be completely honest in bankruptcy because bankruptcy courts feel that only the honest debtor is entitled to a discharge of debt. You must list all of your property, debts, and creditors. If you fail to do so you may you lose the bankruptcy discharge. Because dishonesty in bankruptcy is a serious federal crime you might also be subject to an FBI investigation.

Bankruptcy Fraud 

Bankruptcy is a legal process through which a business or individual is discharged of the debts they are unable to pay. When it comes to bankruptcy fraud, it usually takes one of three forms: concealment of assets, multiple filings, and petition mills. Bankruptcy fraud is a federal crime, and a conviction can result in a fine up to $250,000 and/or a five-year jail sentence.

Concealment of Assets

The most common type of bankruptcy fraud is concealment of assets. This is when a debtor hides assets during the portion of the bankruptcy process where one is supposed to declare all assets, usually through transferring the asset to family or friends, moving the assets to off-shore accounts, or simply by failing to include them on the list of assets. This is usually done in an attempt to keep these assets from being liquidated.

Multiple Filings

Multiple filing is when a debtor files for bankruptcy in more than one state, and submits incomplete lists of assets on both filings to avid liquidation of those assets. It is also considered a “multiple filing” when a debtor files for bankruptcy under a false or assumed name.

Petition Mill

Petition mill bankruptcy fraud is unique because the fraud is perpetrated by a third party, not the debtor. This is commonly found in poor neighborhoods where people often take advantage of debtors facing eviction.

In this scheme, a debtor is targeted by a firm that offers help to debtors looking to avoid eviction. In exchange for large fees, the firm then takes the debtor’s information, claiming they will help fight the eviction. But in reality, they file for bankruptcy and drain the cash resources, thus ruining the debtor’s credit.

Hire a Lawyer

If you are facing bankruptcy, it’s advised that you hire a lawyer. They can advise you on the necessary steps you need to take to file a legal and valid bankruptcy.

Teresa’s Malpractice Suit Against Kridel

While the Giudice’s hired Kridel to aid them in their bankruptcy, last year Teresa filed the malpractice suit against him on allegations that he not only made mistakes in the couple’s filing, but also that he tried to cover up the mistakes. They allege that these mistakes are what led them to federal prosecution.  Kridel has since fired back, saying that the mortgage conspiracy to which the couple pleaded guilty actually predated the bankruptcy and that the Giudices had provided him with incorrect information that was then included in the bankruptcy filing.

Sywilok’s new motion to reopen the bankruptcy has been filed in light of the alleged malpractice that Teresa claims that Kridel made. Since Kridel’s malpractice is alleged to have occurred prior to the couple’s bankruptcy filing, and monetary damages would need to be considered as part of the Giudice’s estate, and would thus need to be used to repay creditors.

bankruptcy estate is all of the legal and equitable interests of a debtor when the bankruptcy is started.

Teresa’s new lawyers allege that the “vast bulk” of the alleged malpractice occurred after the couple initial filed, which would mean that it should not be considered part of the estate.

A hearing on the motion to reopen the bankruptcy is set for May 24.

Still Making Money

Despite the fact that there is such controversy surrounding the couple, it is still unknown if the Giudices have repaid any of their creditors since the bankruptcy filing was closed in 2014. While Teresa has concluded her year-long stint in federal prison, she has also made money off of her stay – from a Bravo special called “Teresa Checks In.” The reality TV star has also released a memoir she wrote documenting her time in prison. It was briefly on the New York Times bestseller list. Joe is currently serving a 41-month sentence at the Federal Correctional Institution in Fort Dix. Still, it seems that the couple was able to bring their mortgage current on their Montville Township last year, thus avoiding foreclosure proceedings.

An Overview of The Bankruptcy Process

The best way to avoid committing bankruptcy fraud is to have an understanding of the process and work with a lawyer that is skilled in handling these types of cases.

Bankruptcy Petition

To prepare your petition you will need to complete a list of your (or your company’s) assets, debts, income, and expenses. Additionally, you will need to create a summary of your financial affairs. Review everything to check for accuracy. Then you will be able to file your petition with bankruptcy clerk’s office. This filing triggers an “automatic stay” which prohibits most creditors from being able to continue their collection efforts against you or your assets until a bankruptcy judge gives them permission to do so.

Disclosure Statement 

You will need to file a disclosure statement containing information about your financial affairs. This will allow your creditors to make informed decisions when they decide if they will accept or reject your plan.

What should be included on the disclosure statement is dependent on the nature, history, and size of the Chapter 11 debtor. For small business cases, a bankruptcy court may decide a separate disclosure statement is not needed because the plan of reorganization provides thorough information.

Here are some of the typical items included in a disclosure statement:

  • financial history of debtor
  • circumstances that led to the bankruptcy filing, including significant events like job loss or injury
  • summary of reorganization plan
  • description and value of debtor’s assets
  • description of claims, liabilities and how they are addressed in the plan
  • tax consequences of reorganization plan
  • plan confirmation procedures and requirements
  • feasibility of plan
  • comparison with Chapter 7 liquidation, and
  • all other information that a creditor would need to make an informed judgment about the plan.

The disclosure statement and proposed plan of reorganization is then mailed to every party in interest, including your creditors. The disclosure statement also includes information for your creditors that explains how they may participate in the bankruptcy. It also includes information regarding how the creditor’s rights may be adversely affected.

Disclosure Hearing

After the disclosure statement is filed, a court holds a hearing to approve or reject it. Typically, a plan will not be accepted or rejected until the disclosure statement is approved.

There will be a hearing for the disclosure statement during which parties involved can object to the language included in the statement. Usually disclosure statements are approved and the hearing is just a formality.

Proposed Plan for Reorganization

You will outline how creditors will be treated in your plan of reorganization. Creditors are assigned as either priority debt creditors, secured debt creditors, or unsecured debt creditors. If a creditor does not approve how they are treated in your proposed plan of reorganization, you are able to file a motion (called a cramdown) asking the judge to force the creditor to accept the plan.

Confirmation Hearing

You will ask a judge to approve your plan of reorganization at your confirmation hearing. All of your creditor classes will need to have accepted your plan for a judge to be able to approve the plan. This is where you would file a cramdown motion if you have not received approval. A court will then need to reschedule the confirmation hearing. If the creditor does not respond to this motion for cram down, it is ruled as accepting the plan. But if the creditor does respond to the motion, you will need to negotiate with the creditor to try to get it to accept plan treatment. If an agreement cannot be made between you and the creditor, then a judge will decide at a hearing.

Making Payments 

After your reorganization plan is approved, you have to start making payments to creditors in accordance with that confirmed plan. You will need to abide with the new contract you have with each of your creditors. If you default on payments, a creditor may sue you on that basis. Because of the agreed to plan, you will have little recourse.

Payments can continue for many years depending on your proposed plan. And debts such as mortgages or car notes typically get re-amortized over an extended period. This means a lender recalculates the monthly payments during the repayment term.

Discharging of Debts

A discharge of debts is the main reason you enter Chapter 11 bankruptcy, and it happens after you have made all required payments to your unsecured creditor class. After paying everything off you will ask the court for a discharge of the remainder of your unsecured debts. This motion prevents any of these creditors from collecting on any of the debts in the plan. This is the end of your Chapter 11 bankruptcy.

Working with an Attorney

Facing bankruptcy, regardless of if it’s a personal or business bankruptcy, is a scary thing. There might be ways to avoid it and still keep your credit intact. Working with a bankruptcy lawyer will ensure you are made aware of all the options available to you. Because bankruptcy law can be confusing, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have should you decide to file. There can be a lot of questions during this extremely stressful time. Let the lawyers at RHM LAW LLP walk you through the process so you can achieve the best outcome possible. 

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