By Dietrich Knauth

NEW YORK (Reuters) – A U.S. judge said Thursday that he may reverse course on ending Rudy Giuliani’s bankruptcy and instead keep Donald Trump’s former lawyer under Chapter 11 supervision until he pays about $350,000 in fees owed to his creditors.

U.S. Bankruptcy Judge Sean Lane had ruled on July 12 that Giuliani should be kicked out of bankruptcy over his failure to make required financial disclosures. But the decision did not immediately take effect, and Lane said in a Thursday court order that he was having second thoughts due to the former New York mayor’s refusal to reimburse creditors who hired investigative accountants to fill gaps in his financial reports.

Ending the bankruptcy without taking care of those fees would essentially reward Giuliani for failing to make required financial disclosures, according to Lane.

“There may come a point when dismissal is no longer an option,” Lane wrote.

Giuliani, 80, filed for bankruptcy protection in December after a Washington, D.C., court ordered him to pay $148 million to two Georgia election workers who he falsely accused of rigging votes in the 2020 presidential election which was won by Democrat Joe Biden.

There is no question that Giuliani owes the fees or that he has the ability to pay them – Giuliani’s apartments in New York and Florida are worth approximately $9 million, Lane wrote. Giuliani has “simply refused” to pay them, according to Lane.

Lane ordered Giuliani and his creditors to suggest alternative paths forward by July 31.

Once dismissed from bankruptcy, Giuliani’s creditors will be free to pursue lawsuits against him for defamation, sexual harassment and other claims stemming from Giuliani’s work for Trump, the former Republican president, as he sought to overturn his loss in the 2020 election.

Despite the legal risks, Giuliani told Lane he preferred to end the bankruptcy rather than continue under more onerous court supervision proposed by his creditors. A committee appointed to represent Giuliani’s creditors had asked Lane to appoint a bankruptcy trustee to take over Giuliani’s finances and businesses.

Giuliani’s most significant creditors, former election workers Wandrea “Shaye” and Ruby Freeman, had argued in favor of dismissal, which would allow them to seek payment on their $148 million defamation judgment against Giuliani.

Giuliani’s attorneys had said that dismissing the case would also free Giuliani to appeal that judgment, which had forced him to seek bankruptcy protection.

Lane said Thursday that he would consider appointing a bankruptcy trustee to oversee the sale of Giuliani’s $6.5 million New York apartment and pay the overdue fees from the proceeds of that sale. Lane said he may also require Giuliani to testify under oath about his finances before proceeding to dismiss the case.

(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi and Daniel Wallis)

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