Story first appeared in the Detroit Free Press.
A federal bankruptcy judge has approved a settlement that ends the $40 million bankruptcy case of former Arkansas and Michigan State football coach John L. Smith.
Judge Ben Barry signed an order Tuesday discharging the debts of Smith, now the head coach at Fort Lewis College in Colorado. In exchange for that discharge, Smith will have to cough up $265,000 in cash and about $400,000 in real estate, according to the settlement terms. It’s not a bad deal for Smith after filing for Chapter 7 bankruptcy last year while serving as interim head coach of the Razorbacks.
In that filing, he claimed to have $40.7 million in debts stemming from real-estate deals gone bad around Louisville. He also listed just $1.3 million in assets.
The case was headed to trial until settlement talks started with his creditors, many of them his former friends or business partners. Smith’s contract with the University of Arkansas also was dragged into the mess because his creditors alleged he had improperly structured his Razorbacks contract to keep money away from them. A week before his bankruptcy filing on Sept. 6, 2012, Smith signed a contract that said $600,000 of his $850,000 in pay รข€” 71 percent -- would be deferred until December and February.
In general, the bankruptcy estate controls assets acquired by a debtor before the date of the bankruptcy filing. Debtors generally can keep what they earn after the filing date. By having his pay deferred in this way, he was able to claim on his bankruptcy petition that his net monthly income was just $107.66, after expenses.
Smith “strenuously argued that his (pre-bankruptcy) petition from the Razorback Foundation totaled no more than $66,666.67,” the bankruptcy trustee, John T. Lee, said in a court filing.
Lee investigated this issue and reached a settlement with Smith to pay $165,000 to the trustee instead.
“The trustee does not believe the structuring of these contracts to have been fraudulent,” Lee said in the court filing.
Smith’s Arkansas contract was not renewed after finishing with a 4-8 record last year in place of his fired predecessor, Bobby Petrino.
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