Former Little Rock developer Roger S. “Steve” Clary said at his sentencing hearing last month that he has reduced his debt in his Chapter 7 bankruptcy case by more than $100 million and now owes less than $50 million.
Although Clary’s bankruptcy filing doesn’t indicate all the creditors that have been paid or what the current debt level is, that doesn’t mean that Clary hasn’t reduced the debt, according to Joshua Silverstein, a professor of law at the University of Arkansas at Little Rock’s Bowen School of Law.
“There’s lots of materials related to a case in bankruptcy … that never actually get filed with the court,” Silverstein said. “They’re only filed if there’s some dispute or disagreement. So it’s entirely possible that you wouldn’t see it on the docket sheet itself what payments have been made.”
One creditor that hasn’t been paid is Banc of America Leasing & Capital LLC of Indianapolis, which has a judgment against Clary for $1.595 million, its attorney, Lance Miller of Little Rock, said last week. Clary was ordered to repay the amount as part of restitution in his criminal case.
Miller said he hadn’t followed Clary’s bankruptcy closely and wasn’t aware of the current debt level. But if the amount was reduced, “the only thing I can figure is [Clary] sold off enough collateral, and that reduced the debts down by liquidating collateral,” Miller said.
Clary told Arkansas Business after his sentencing that the debt had been reduced primarily by giving property back to secured creditors.
Part of the reduction in debt came from Clary losing his interest in Shackleford Crossings. His largest unsecured creditor was M&I Marshall & Ilsley Bank of Milwaukee for $116.5 million, and the debt was tied to Shackleford Crossings in west Little Rock. The shopping center fell into the hands of a receiver after Clary defaulted on a $74 million funding agreement. In May 2011, the Dallas office of Invesco Real Estate bought the debt for an undisclosed sum from M&I Marshall. In July 2011, Invesco Real Estate received the 271,675-SF center on about 40 acres of property with a $42 million foreclosure bid.
Discharge Order Withdrawn
Clary, 61, and his wife, Cynthia, filed for Chapter 7 bankruptcy in July 2010 and listed $168.6 million in debt and only $1.4 million in assets, which was mainly their $1.2 million, 7,200-SF home in west Little Rock.
The Clarys received a discharge from bankruptcy in December 2011, but that order was withdrawn in May 2012 after it was discovered the Clarys didn’t complete a required financial management course. The filing indicates that the couple still hasn’t completed the course.
No documents have been filed in the case since April, and the case is listed as open.
Steve Clary didn’t return a call for additional comment.
The Clarys’ bankruptcy attorney, Frederick Wetzel III of Little Rock, said last week that he thought the bankruptcy case “was all wrapped up and done.”
Wetzel referred questions about who has been paid to the trustee in the case, M. Randy Rice of Little Rock. Rice didn’t return several phone calls or an email.
Wetzel also said that he didn’t have any information about Clary’s statement made about reducing the debt during his sentencing hearing on Oct. 30.
At the hearing in front of U.S. District Judge J. Leon Holmes, Clary was sentenced to 30 months in federal prison. He pleaded guilty in February to one count of mail fraud in connection with misusing almost $1.6 million of a $4.5 million loan that he received from Banc of America.
Clary told the court that he and his wife wanted to settle all their debts, even if they aren’t legally obligated to do so. Holmes granted Clary’s request for a delay to report to prison until March 10 in order to complete some transactions that might lower the outstanding debt on his bankruptcy case. It is unclear from Clary’s criminal and bankruptcy filings what the pending transactions are.
A spokeswoman for the U.S. Attorney’s Office for the Eastern District of Arkansas said she didn’t have a comment on Clary’s statement.
Silverstein, the law professor, said the bankruptcy case will move forward even with Clary in prison.
In a Chapter 7 case, the trustee will gather all the assets from the debtor and then distribute them to creditors at the end of the case. But some creditors could be paid before the case is closed. Secured creditors will be paid first.
In the Clary case, most of the debt, or $138.5 million, was held by unsecured creditors. Still, if Clary wants to pay all the creditors, he could enter into a binding agreement to repay the debts, even though they would have been forgiven in bankruptcy.
But if he made the deals, that might not make the public record.
“All of that takes place outside the bankruptcy process,” Silverstein said. “So I wouldn’t expect to see too much of that being discussed in any bankruptcy docket sheets or even in most filings.”