How Does a Bankruptcy Trustee Get Paid?

Chapter 7 Trustees

Chapter 7 Trustees receive payment for their services in two possible ways. First, the Chapter 7 Trustee receives a $60 fee every Chapter 7 case filed where a filing fee is paid by the debtor. So, out of the current $306 filing fee, $60 goes the Trustee and $246 remains with the Court. Of course, that means that if the filing fee is waived by the Court (the debtor does not have to pay it), the trustee does not receive the $60 (and the court does not receive the $246).

The Chapter 7 trustee is also paid a fee for any funds distributed to creditors from assets administered (collected/sold/liquidated) by the Trustee for the benefit of creditors. The Bankruptcy Code at 11 USC § 326 sets out the maximum fee a Trustee can receive as follows:

– 25 percent on the first $5,000 or less,
– 10 percent on any amount in excess of $5,000 but not in excess of $50,000,
– 5 percent on any amount in excess of $50,000 but not in excess of $1,000,000, and
– 3 percent of such moneys in excess of $1,000,000

The trustee applies to the court for a fee within these parameters. The court can award up to these amounts. For example, if a trustee paid $100K to creditors, the fee would be up to $8,250 (25% of $5K is $%1,250, plus 10% of the next $45K is $4,500, plus 5% of the next $50K is $2,500; that totals $8,250). The more work a trustee has to do collect and distribute the funds, the better the chance he/she might get the maximum available fee. If the trustee writes a quick demand letter and funds are sent to the trustee, then the trustee would probably not expect the maximum fee.

Most Chapter 7 cases are “no asset” cases. That means the Trustee has no assets to pursue, collect, liquidate and to pay money to creditors. Stated another way, in most cases either the debtor is able to exempt/protect all his/her/their assets or the assets that might be available are not worth the trouble to pursue, if they do have value. If the debtor pays the filing fee, a Chapter 7 Trustees receives $60 per “no asset” case.

Chapter 13 Trustees

How Chapter 13 Trustees are paid and how much is a little more complicated. Every time a Chapter 13 Trustee makes a distribution to creditors (usually monthly), the trustee collects a fee. Presently, the local Chapter 13 Trustee’s fee is about 3.75% (and sometimes even less) of funds distributed to creditors. My recollection is that that is the lowest fee west of the Mississippi (or close). Out of the fees collected, the Trustee pays his staff and all operating expenses including and his/her Trustee compensation. Unlike the Chapter 7 Trustee, the Chapter 13 Trustee compensation is capped by the federal government. So, in short, the Chapter 13 Trustee is paid from the fees collected on payments to creditors.

It is also important to note that most Chapter 13 Trustees, including those in Washington and Oregon, have websites that a debtor can access to see which creditors have filed claims and who is receiving payment from the Trustee. The Trustee pays for the website and related services from the trustee’s fees received. Debtors, therefore, receive a valuable service from the percentage fee paid to the Trustee.

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