Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 11 Bankruptcy?”
When you think of the world of professional athletes and their net worth, the term “bankruptcy” is probably not one that comes to mind. Between the multi-million dollar salaries and lucrative endorsement deals, it is hard to imagine that someone raking in that kind of dough would be able to spend it all, let alone need to seek bankruptcy protection. So when NHL player Jack Johnson announced that he was filing for bankruptcy in 2014, claiming more than $10 million in debt, it stunned those within the hockey world. The lenders reported that interest from those loans had accrued his total amount owed to $21 million.
In an even more startling twist, Johnson pinned the blame for his financial distress on his parents. He claimed in his bankruptcy filing that his parents had taken out the $10 million in high-interest loans in his name that borrowed against his future NFL earnings. Because he had a signed power of attorney giving his parents control over his finances before signing his seven (7)-year, $30.5 million contract with the Los Angeles Kings in 2011, Johnson’s claims seemed possible at first.
Johnson blames parents
In 2014, one of Johnson’s lenders contacted the Columbus Blue Jackets, the team for which Johnson currently plays. Johnson said it was only then that he learned about his financial situation.
Johnson said in court documents that he had granted his family power over his finances to help him save and invest them money. Because the average career of a pro hockey player is roughly five (5) and a half years, Johnson said he didn’t know how long he would get to play in the NHL and thought leaving the financial reins in his parents’ hands would help capitalize on that.
Now, a recently-approved Chapter 11 plan is going to make it feasible for Johnson to pay off the millions of dollars in loans his attorneys still insist Johnson’s parents took out in his name. Under the plan the NHL player will have to hand over most of his annual $5 million salary over the next five (5) years to creditors but he will still be permitted to keep $246,000 per year for “living expenses.”
Lenders accuse Johnson
The court-approved settlement has been a long, scandalous time in the making. After Johnson filed for bankruptcy and pinned the blame on his parents and their lenders, he asked the court to transfer his Chapter 11 filing to a Chapter 7. The move would have liquidated Johnson’s assets and would likely have meant far less for the creditors in settlement. It also would have protected Johnson’s future NHL earnings from creditors.
At that point multiple creditors came forward and accused Johnson of false representations and/or actual fraud. They said Johnson had fabricated his claims about his parents’ hand in the ordeal and had been complicit in taking out the loans and trying to outmaneuver the bankruptcy court. The creditors also charged that the hockey player had not actually become estranged from his parents from the ordeal as he claimed.
The creditors’ court documents included the sworn oath of a notary public in Ohio that Johnson had personally appeared before him in 2014 and signed a $1.9 million promissory note that pledged Johnson’s NHL contract as collateral.
Bankruptcy judge places responsibility on Johnson
The bankruptcy court responded by denying Johnson’s request to convert to Chapter 7 in a 147-page opinion that sharply rebuked Johnson for not acting in good faith to attempt to negotiate a settlement with creditors. The bankruptcy judge also reprimanded Johnson for failing to hire a forensic accountant to investigate the whereabouts of the money from the unpaid debts in his name, failing to liquidate his assets and continuing to live a lavish lifestyle even as he sought bankruptcy protection from the courts. Johnson’s original bankruptcy filing claimed that he had more than $21 million in debts. After filing for bankruptcy he allegedly racked up an extra $50,000 debt for his wedding, amongst other expenditures, while claiming in his court papers that he had been reduced to coupon-clipping.
Johnson said in his bankruptcy filing that he had opted to not pursue legal action against his parents because of their “limited financial wherewithal.”
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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