If you a fan of college football, you have watched the surprising collapse this year of the Arkansas Razorbacks. Once ranked #10 in the preseason poll, the Razorbacks lost a shocker to unranked Louisiana-Monroe and then the next week were crushed by Alabama, 52-0. Now, the details of their head coach’s bankruptcy filing are being made public.
Before the team’s epic collapse, John L. Smith, the head football coach of the Razorbacks, filed for Chapter 7 bankruptcy. He requested that the bankruptcy court wipe away more than $25.7 million in debts. Most of his debts are associated with bad real estate investments, including the largest debt of $20 million. Mr. Smith listed over $1.4 million in assets, including two retirement accounts worth an estimated $1.2 million. Additionally, Mr. Smith disclosed that he is paid around $19,000 per month from the university.
Generally, in a Chapter 7 bankruptcy all of the debtor’s assets are exempt (i.e. cannot be seized to satisfy the claims of creditors) and all of the unsecured debts, like credit card bills and medical bills, are wiped away. In most states, including Texas and Arkansas, retirement accounts are exempt from creditors. So in Mr. Smith’s situation, he would be able to keep all his assets, including the $1.2 million in retirement accounts, and get rid of the $25.7 million in debts.
John L. Smith’s bankruptcy is rare. Most individuals with his amount of monthly income are not eligible to file for Chapter 7 bankruptcy because they are currently making too much money. However, because Mr. Smith’s debts are “primarily business debts” the court does not consider the amount of income an individual earns to determine whether he/she is eligible to file for bankruptcy.
There are two important aspects that we should take away from Mr. Smith’s bankruptcy filing. One, if you are drowning in debt that is “primarily business debts” then there are no income eligibility requirements for file for bankruptcy. An individual could have a significant monthly income and still be eligible for Chapter 7 bankruptcy. Two, your retirement accounts are exempt from creditors and will not be taken from you when you file for bankruptcy. Numerous clients have come into my office and told me that they had cashed out their retirement accounts to pay some of their debts before they came to talk to me about bankruptcy. This is a huge financial mistake. They could have filed for bankruptcy, protected their retirement accounts, and wipe away their debts so that they could get back of their feet and still have their retirement savings. You do not have to be dirt poor and sell all your assets before filing for bankruptcy.
Most individuals face some type of financial difficulty in their lives and bankruptcy may provide an avenue to give you a fresh start. Please give us a call at 214-236-2712 if you or someone you care about is considering bankruptcy. We offer free initial bankruptcy consultations to all potential clients.