I have been wondering for a while if LJ's legal troubles violate his contract, thus allowing the Chiefs to cut him and completely remove him from the books (including guaranteed money). This article pretty much answers that question for me.
Chiefs, Larry Johnson to Meet Over*Contract - Arrowhead Pride
I do not think a team would usually exercise their right to cut a big time player without keeping their commitment in regards to guaranteed money, but in this case Larry has repeatedly violated his contract and stated that he does not want to be part of the team.
My guess is that Larry will either sign a new contract at a great discount, or he will be cut. I am almost certain he will be cut.