Michael Vick Bankruptcy
Michael Vick was in the news today, but not for dog fighting or football. It was for his bankruptcy case.
People may wonder why a highly paid professional athlete who was once the highest paid athlete in the NFL would need to file a bankruptcy case. As the old saying goes, people who earn a lot spend a lot. But, though the headline said that the judge handed Vick a victory, it is not clear that it was anymore of a victory than an ordinary debtor would get.
Vick reportedly owed more than $20 million in debts, and had 9 million in assets he had to sell as part of this plan. He also had to commit most of his earnings to the repayment plan during it’s term. He is guaranteed 5 million dollars per year as an Eagle, and is limited to $300,000 living expenses, meaning that in addition to the sale of assets, which will bring an unknown amount of money, he’ll give up 94% of his guaranteed earnings. The plan is 6 years long, with no payments during the first year. That is slightly better than the standard for chapter 13 plans which are limited to a total of 5 years. But if he sells the assets in the first year, and pays roughly $4,700,000.00 for the next 5 years after that, he’ll pay a total of $23,500,000.00 in salary payments, plus the sale of assets in the first year. The additional amount may represent interest. That’s more than 100% of his debts which is very unusual in a typical chapter 13 case.
Of course, he didn’t file a chapter 13 case. He made too much money. $20 million in debts far exceeds the limits for a chapter 13 case, so he filed a personal chapter 11 case. That explains the 6 year payout with no payments in the first year. But for him to potentially pay more than 100% of the debts is no victory. Most Chapter 13 debtors pay far less than that.