Jon Morgan is in a financial position where he owes more than he earns each month. Due to his lack of financial planning and a heavy debt load, Jon started missing payments and saw his credit rating plunge. Unless corrective action is taken, personal bankruptcy will follow.
Jon recently contacted his lawyer in order to set up a wage earner plan with his creditors and establish a debt repayment schedule that is workable in light of his personal income. His creditors have all agreed to a plan under which interest payments and late fees will be waived during the repayment period. The process would have Jon make payments to the court, which then will pay off his creditors.
Jon has outstanding debt of $28,000. His creditors have set a repayment period of 4 years during which monthly principal payments are required. They have waived all interest charges and late fees. Jon’s yearly take-home income is $30,600.
a. Calculate the monthly debt repayment amount.
b. Determine how much excess income Jon will have each month after making these payments.