The recent economic times have forced many California individuals to re-evaluate their financial situations. In many cases, this has led to the creation of better budgets, but in some cases, it has required a filing for bankruptcy to get out from under mounting debt.
Last year, a former Arkansas head coach filed for Chapter 7 bankruptcy protection, which allows an individual to eliminate or discharge most of their debt. He claimed that he had more than $40 million in debt due to real estate investments in Kentucky.
Before the debt can be discharged, creditors have an opportunity to make a case that their debt should not be discharged. In this case, the former head coach is being accused of trying to use his employment contract to defraud many creditors. The bankruptcy arm of the Department of Justice is also considering an investigation of the former coach for fraud and abuse of the bankruptcy system.
The creditors point to his unusual employment contract with Arkansas last year, where 71 percent of his salary was deferred until the end of the season. Bankruptcy estate's only control assets acquired before the date of the bankruptcy filing. In general, the debtor gets to keep anything earned after the date of filing.
Not all debt can be discharged under Chapter 7 bankruptcy. The debt that qualifies includes credit cards, medical bills, secured loans and mortgages, if the debtor is willing to lose their home. However, debt such as student loans and child support obligations cannot be discharged.
Source: USA Today, "Creditors allege fraud by former Arkansas coach Smith," Brent Schrotenboer, Feb. 12, 2013