As I discussed here in April, U.S. Bankruptcy Judge Frank J. Santoro (U.S. Bankruptcy Court for the Eastern District of Virginia) rejected suspended NFL star Michael Vick’s Chapter 11 plan, and ordered his attorneys to prepare a new one. Under the rejected plan, Vick would have repaid his creditors and emerged from bankruptcy. However, the plan called for Vick to come up with $750,000 to $1 million in "good, hard cash" to be paid to creditors on the day it would go into effect. The court saw no evidence that Vick could come up with that much money. It was reported that Vick had about $210,000.00 but owed approximately $ 4.7 million to various creditors. The plan was largely based upon the assumption that Vick would be reinstated into the NFL this fall. Vick’s lawyers also said he has agreed to a television documentary deal that will pay him $600,000. However, his only guaranteed income at that time was a $10-an-hour construction job.
On July 2, Vick's attorney's submitted a revised plan, which Judge Santoro will consider at a July 31 hearing. Under this plan, Vick would keep one vehicle, one home and a large assortment of furniture and personal items. The new plan also gives creditors a bigger cut of his future earnings but would still leave enough for Vick to live comfortably if he is able to resume his once-lucrative NFL career. It would give Vick incentive to return to the NFL and take responsibility to pay his taxes and expenses, Vick's lawyers wrote in papers filed in U.S. Bankruptcy Court in Newport News.
Vick now plans to keep only a 2007 Infiniti SUV and the house in Hampton where he is serving the final two months of his nearly two-year sentence on home confinement. Vick pleaded guilty to operating a dogfighting ring in August 2007 and was suspended indefinitely by NFL commissioner Roger Goodell. He is scheduled to be released from federal custody July 20. Goodell has said he will review Vick's status after he is released but has not given a specific timetable. (While Vick's reinstatement into the NFL remains uncertain, there is speculation that Vick will play in the new United Football League this fall, where he could earn no more than $620,000.00).
Unlike the previous plan, the new one would give creditors 10 percent of the first $750,000 a year Vick earns, ensuring that they will get part of his future paychecks even if he doesn't make it back into the NFL. The plan rejected by Judge Santoro in April would have allowed Vick to keep the first $750,000. Creditors would get a larger slice of any Vick income over that amount, ranging from 25 percent to 40 percent on a sliding scale. The 40 percent cut kicks in at an earnings level of more than $10 million, which at least initially would appear to be a stretch for a 29-year-old quarterback who hasn't played since the 2006 season. In exchange for the bigger cuts of Vick's future earnings, a committee representing his unsecured creditors agreed to allow Vick to keep more furnishings, including items from a his Duluth, Ga., home that is being sold. The plan includes a detailed list of items, from a toaster to a Mrs. Pacman arcade game from the home's bar.
It is important to note that Vick’s ability to repay his creditors is an issue because he has filed under Chapter 11. Chapter 11 is reorganization, as opposed to liquidation. 11 U.S.C. § 1107. (For a more detailed discussion of Chapter 11 proceedings in general, see my blog entries at the National Bankruptcy Forum). Debtors may emerge from a Chapter 11 bankruptcy pursuant to the plan. 11 U.S.C. §§ 1121-1129. The debtor’s business may continue to operate during a Chapter 11 bankruptcy. 11 U.S.C. § 1108. Although Chapter 11 bankruptcies typically involve a corporation or partnership, individuals may file under this chapter as well in certain circumstances. However, the vast majority of individual filers end up applying for bankruptcy under either Chapter 7 or Chapter 13. Vick’s case is unusual because of his high earning potential if he is in fact reinstated into the NFL and can regain his All-Pro status.
-Drew Broaddus