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College coach filing for bankruptcy on 40 million dollar debt

At what point is it filing for bankruptcy appropriate? The answer depends on the individual. One way to address the question is to compare a person's liabilities against his or her assets. For college football coach John Smith, that calculation produces approximately a 40 to 1 debt to asset ratio. Tennessee residents might find this article on Smith and Chapter 7 exemptions interesting.

According to Smith's amended filing, the coach has increased his liabilities by $15 million since his September 19 filing, when the coach originally reported total liabilities of $25.7 million and assets worth $1.2 million. The difference appears to be for money owed to Branch Banking & Trust in Louisville, Kentucky.

The football coach filed for Chapter 7 bankruptcy in early September. Chapter 7 is a form of liquidation bankruptcy, unlike Chapter 13, which is a form of reorganization bankruptcy. Much of the coach's debt is attributable to risky real estate investments he made in 2006.

Chapter 7 is referred to as liquidation bankruptcy because the process involves selling off the debtor's assets to pay for as much of the debt as possible. What cannot be paid off is then discharged. While the debtor's property is available for liquidation, bankruptcy law does protect some types of personal property from being sold off. These are called exemptions.

There are both state and federal exemptions. Some of the exemptions that consumers can take advantage of include the homestead exemption, car exemption and exemptions for certain personal property items like clothing. According to Smith, most of his assets are in retirement accounts. Depending on the type of account, these funds may be exempt.

Source: USA Today, "Arkansas coach's debt hits $40 million, filing shows," Brent Schrotenboer, Oct. 3, 2012

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