Personal Bankruptcy – Story of a Bankrupt Billionaire
Patricia Kluge, 62, filed for chapter 7 bankruptcy this month. She went from simple beginnings in Bagdad, Iraq, to a billion dollar divorce settlement from the richest man in America, and now to a no asset bankruptcy in Virginia. Presently married to William Moses, the couple filed for joint bankruptcy protection. Their bankruptcy petition and schedules indicate that they have $50 million in debt.
Ms. Kluge’s bankruptcy story can be seen as a lesson for Massachusetts bankruptcy clients.
Born in 1948 of a British father who was a legal translator, and a mother who was of Scottish and Iraqi dissent, her parents divorced and she moved to London with her mother and sisters. Rejecting a secretarial career, Patricia Rose, at 19, worked as a belly dancer in London. She married Russell Gay, the publisher of Knave, a British porn magazine. She worked as a model for the magazine and penned an advice column. She acted in a racy movie.
Kluge and Gay divorced in 1976 and she was engaged to a London psychiatrist when she met John Kluge in 1990.
When she married John Kluge, he was chairman of Metromedia and known as the richest person in the United Sates. He was allegedly worth over $5 billion. He converted to Catholicism when he married her in 1981. They built a notorious Virginia estate shortly thereafter. Set on 3,000 acres in Abermarle, Virginia, the 45 -room 23,500 square foot English manor “home” and estate had a full golf course, helicopter pad, horse stables, and a Gothic chapel. The couple was famous for hosting events for royalty, with celebrities often in attendance.
They also bought an estate in the Scottish Highlands, near the Queen’s Balmoral castle. For Christmas, Queen Elizabeth gave her new neighbors a Labrador retriever puppy. In 1990 all of that came to an end; or a new beginning. Her divorce settlement from John Kluge was alleged to be over more than billion dollars, with interest payments at about $1.6 million per week. She kept the Abermarle estate and the “lodge” in Balmoral as well.
Married to Mr. Moses, the couple tried several avenues of investment. There was the Kluge Winery. They paid $7 million in 1999, and watched it grow to a $70 million asset before the recession. However, Farm Credit Bank foreclosed on the Kluge Estate Winery & Vineyard after a default on the $35 million loan. The couple blames the winery failure on the economy. The land was sold for $7 million, the equipment for $11 million, and the winery for $6 million. Ironically, a businessman who was himself involved in bankruptcy from time to time, Donald Trump, bought the winery! Kluge retains her day job working for her friend the Donald.
There was also a Vineyard Estates subdivision, with 511 acres. This development had an $8.2 million loan to Sonabank. Kluge defaulted on the Sonabank loan in 2010, and the bank bought the estates for $4.9 million in January 2011. Kluge still resides in one house in the subdivision.
The Virginia estate was recently foreclosed upon and is on the market for $16 million by Bank of America. Last summer, to raise money, Ms. Kluge auctioned the furnishings for over $15 million. The draperies alone sold for $150,000!
Bank of America sued Ms. Kluge in federal court in Charlottesville, alleging that there was a default on three loans valued at over $22 million. The couple abandoned defending themselves in the lawsuit, giving their rights, if any, to the bankruptcy Trustee.
The final foreclosure was against Fuel Co, a gas station which Kluge closed in 2007. Assessed at over $1 million it is expected to sell for half of that.
Will there be life after bankruptcy? It would be hard to bet against Patricia Kluge. Working for Donald Trump, former neighbor of the Queen, Ms. Kluge may simply be another victim of the recession, as she invested heavily in real estate. On the other hand, in the span of 21 years, she went from having one billion dollars to filing for Chapter 7 personal bankruptcy.