Cynthia Smiley bankruptcy raises questions about dischargeable debts

Cynthia Smiley, the wife and codebtor of former Arvest Bank President Dennis Smiley, used her husband’s position to borrow more than $1.7 million for Design for the Home LLC, the interior design business she closed in April of this year, according to her recent Chapter 7 bankruptcy filing.

This highly leveraged home-based business generated just $10,747 income for Smiley between 2012 and 2014. This paled in comparison to the credit card debt ($156,000) amassed by the debtor in the same period. The debt was American Express, $104,000; Citibank, $34,000; Dillard’s, $10,000; Neiman Marcus, $5,400; and Bank of America, $2,800.

It looks as though the $4 million in bank loans made to the couple in recent years went to support a lifestyle beyond their means. Dennis Smiley’s income was not disclosed in his wife’s individual filing. But lenders say they showed his income at roughly $400,000 a year, which is short of the amount needed to float a $550,000 mortgage and maintain interest payments to 20 banks who continued to extend the couple credit.

Cynthia Smiley claimed that her husband handled all the tax returns and finances for the family and her business. She seeks to discharge 100% of the cosigned debt made with him in recent years. This move comes after knowledge that Dennis Smiley faces allegations of multiple bank fraud incidents relating to collateral used in connection with more than a dozen loans from 20 banks across the state — some of which involved Design for the Home.

When Dennis Smiley suddenly resigned his bank president position in March with Arvest Bank Benton County, lenders on the hook for roughly $4 million began filing civil suits for judgment against the couple who had pledged Dennis’ retirement stock with Arvest Bank as the same collateral multiple times.

Jury trials are expected in several of those civil cases in the first half of 2015 and a federal criminal investigation continues amid fraud and forgery allegations against Dennis Smiley by several of the lending banks and his father, Henry D. Smiley Sr.

Bankruptcy law prohibits debtors from discharging debts that were obtained through a fraudulent manner. Cynthia Smiley’s Chapter 7 Bankruptcy petition is her claim of innocence in these fraud allegations.

Tim Tarvin, bankruptcy law professor at the University of Arkansas, said creditors have a chance to object to their debt being discharged. He said if that’s likely to happen, they could begin voicing their opposition at the creditors’ meeting slated for Nov. 25, although the law gives them longer to do so.

Tarvin said innocent spouses are typically allowed to discharge the debt in their name and get a fresh start. He said debtors facing criminal implications create a more difficult case because some, but no all the debt could be dischargeable. Under the law, he said it’s possible for one spouse to benefit from, and even coerce the other to borrow money. But if there’s an element of fraud that is linked specifically to one of them, the other can claim the innocent spouse provision.

Lenders have until Jan. 26 to file objections to discharge in this pending Chapter 7 bankruptcy case, according to the court docket.

Following Smiley’s resignation from Arvest, Cynthia has returned to work as a real estate agent with reported gross income this year of $19,535 through Oct. 23. That’s nearly twice the income she earned as a home decorator in the prior two years, according to the filing.

Smiley claims in her bankruptcy filing that she and her husband are being allowed to live rent-free with paid utilities in a home owned by John David Lindsey at 3602 Legacy Lane in Rogers.

From Smiley’s bankruptcy filing it appears that aside from their home with three mortgages, the couple had no real assets to show for the millions borrowed in recent years. She disclosed cash assets of $3,938, with a life insurance policy worth $10,500 and jewelry valued at $7,300. She also turned back a 2013 Mercedes Benz to the dealer in March, leaving the couple with a 2011 GMC titled to Dennis Smiley.

The couple did manage to pay $25,000 to attorney Jill Jacoway in April in three separate installments in exchange for Jacoway representing Cynthia in the Chapter 7 bankruptcy proceedings, according to court records.

The Smileys also disposed of their biggest asset in September when they closed on the sale of their home in Pinnacle Country Club. The home was listed at $649,000, but it sold for $550,000. Arvest, holding first and third mortgages, received payment of $305,811. First Security, holding the second lien, was paid $216,702.