Michael Vick will join the ranks of the Philadelphia Eagles with an impressive six-year, $100 million-dollar contract. His creditors, however, are slated to get a significant chunk of Vick’s earnings, due to his recent bankruptcy.
Vick currently owes $19 million dollars to creditors. Vick’s contract only guarantees him $40 million; he has to play the full term in order to receive all $100 million. While $100 million should allow Vick to repay all of his creditors, if he only receives the guaranteed $40 million, some creditors fear they could go unpaid.
Vick filed for Chapter 11 bankruptcy in 2008 when he was serving time in prison on dog-fighting charges. (Chapter 11 is a form of bankruptcy typically reserved for businesses, but certain high-asset individuals can qualify for a Chapter 11 reorganization instead of a Chapter 13 repayment plan.)
His Chapter 11 plan included a provision to channel any future income streams to his creditors. The plan is set up on a sliding scale, paying off creditors in preference based on how much money he brings in. Under the plan, Vick must dedicate ten percent of any income to creditors up to the $750,000 he makes. After that, the percentages ratchet up until, finally, he must pay in 40 percent of anything he earns over $10 million.
The creditors voted for the plan back in 2009, banking on Vick making a comeback in his NFL career and, apparently, they bet on the right horse. The plan is scheduled to last six years, which is conveniently enough the length of Vick’s contract with the Eagles. At the time of the vote however, it was in no way clear that Vick would be back with the NFL at all. Vick had not even been reinstated with the NFL at the time of the creditors’ vote.
With Vick’s surprising turnaround and rise to the top level of NFL fame once again, his creditors must be rubbing their hands in anticipation that they could still get a piece of the action.
Source: The Wall Street Journal, “Vick’s $100M Contract Could Mean Big Bucks for Creditors,” Patrick Fitzgerald, Aug. 30, 2011