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College football coach's Chapter 7 bankruptcy case is settled

Many Texas residents are surprised when they hear about the bankruptcy cases of the rich and famous. They might wonder how people with such high incomes can ever end up in dire financial straits. The truth is that overwhelming debt can strike almost anyone. Many bankruptcy filings are caused not by spending beyond one's means, but rather by unforeseen expenses - like a sudden medical event or plummeting home values.

Football fans may have heard that the former Arkansas football coach John L. Smith filed for Chapter 7 bankruptcy last year as a result of troublesome real estate investments. A settlement in that case was just approved this week.

At the time of his bankruptcy filing, Smith listed $1.3 million in assets, which sounds like quite a lot until you learn that he claimed $40.7 million in debts. As previously mentioned, much of this debt stems from investments that took a turn for the worst.

This case took a bit longer to resolve than the average bankruptcy claim because of Smith's complicated coaching contract.

Typically, during a Chapter 7 bankruptcy case a trustee is able to acquire some of the debtor's assets in order to pay off creditors. The remainder of the debt is then discharged, and any money that the debtor earns after filing is his or hers to keep.

In this case, creditors alleged that Smith had purposely structured his contract in a way that allowed him to be paid most of his income after filing for bankruptcy. However, the bankruptcy trustee found that the contract was not fradulent.

Source: USA Today, "Ex-Arkansas coach discharged of debt in bankruptcy deal," Brent Schrotenboer, Sept. 5, 2013

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