On October 29, 2009, Teresa Giudice and her husband, Giuseppe ("Joe"), filed a bankruptcy case under chapter 7 of the Bankruptcy Code. They claim to have nearly $11 million in debts with approximately $2.25 million in assets. Few people will have to deal with the millions in debts that Joe and Teresa, one of the stars of the Bravo TV series Real Housewives of New Jersey, must in their bankruptcy case. Still, anyone who is considering filing a bankruptcy case can learn valuable lessons from the missteps and mistakes Teresa and Joe have made in filing and throughout their bankruptcy case.
Lesson One: Disclose Everything! Teresa and Joe find themselves in hot water because they may not have listed all of their assets in their bankruptcy schedules to start their case. Both the United States Trustee, a representative of the Department of Justice, and their chapter 7 trustee have objected to the Giudice's bankruptcy discharge and are seeking to dismiss their bankruptcy case. The trustees allege that the Giudices did not include information about certain assets, including bank accounts, a laundromat and an online boutique.
Not only do you run the chance of having your bankruptcy case dismissed without discharging your debts if you leave out assets on your bankruptcy schedules, you commit a federal crime. Never take this chance. Don't be cute when you fill out your filing papers or at your meeting with creditors. The risks are too great. You don't want to lose your right to bankruptcy protection by trying to be a little too clever.
Lesson Two: Communicate with Your Spouse. Teresa said she didn't know the extent of their financial problems when she went on extravagant spending sprees before and after filing their bankruptcy case. If you know that you are running into financial difficulties, let your spouse know sooner rather than later. The little happiness gained by spending without awareness of the consequences will pale in comparison to disappointment and pain that will result when the end comes. Especially, if with the spouse's cooperation, the filing could have been avoided.
Lesson Three: Timing is Everything. In a chapter 7 bankruptcy case, all earnings after the bankruptcy filing date (the petition date) are the debtor's and not available to the pre-petition creditors. Teresa signed a book contract before filing for bankruptcy but was not paid her advance until after they had filed for bankruptcy. She had likely assumed that because payment came after the filing of the chapter 7 bankruptcy case, she could keep it. It is likely she is wrong. When you do the work or whatever else is necessary for a payment before you file for bankruptcy, the payment, even after the petition date, still becomes an asset available to pay pre-petition creditors debts. The same goes if you buy a lottery ticket before you file but your winning numbers aren't drawn until after you file. Congress clearly didn't want people pulling fast ones on their creditors by timing the filing of their cases right before a big payday.
Lesson Four: Bankruptcy is a Public Proceeding. It's hard to imagine a more public bankruptcy case than that of the Giudices. In almost all bankruptcy cases, the only people who will learn of the bankruptcy filing are the person's creditors and the few close relations the person decides to tell. Bankruptcy cases are nevertheless public proceedings. If you are a public figure or hope to be one, the press or an opponent may at some point learn of your bankruptcy filing and attempt to use it as a way to embarrass you.
Lesson Five: Respect the Proceeding. Bankruptcy provides necessary relief and a fresh start to honest debtors. People need an institution where they can free themselves from overwhelming debt. If people continue to abuse the rules and responsibilities required when filing for bankruptcy, the bankruptcy laws may be changed so that it becomes more difficult for honest people who have hit hard times to get the relief they need.
Get more bankruptcy insight and advice from Ted on the Road Out of Debt Web site.