How Does A Chapter 13 Bankruptcy Trustee Get Paid?

29 Oct How Does A Chapter 13 Bankruptcy Trustee Get Paid?

A Chapter 13 is a bankruptcy reorganization for individuals–a payment plan, in other words. The bankruptcy court appoints a trustee (there are standing trustees who serve that function in each district) and the trustee collects payments from debtors, and distributes that money to creditors. So, how does the Chapter 13 trustee get paid?

The Chapter 13 trustee is paid a percentage of what she collects from you and distributes to your creditors. That last part is important–if she collects too much from you and has to refund it, she doesn’t get to keep that. She is only paid based on what is paid to creditors. The amount of the trustee’s commission varies from time to time and district to district, and is re-set periodically. The maximum commission is 10% of distributions, and the trustee must pay administrative expenses (i.e., operate her office) out of that. In addition, the trustee’s personal compensation is capped. The cap is slightly less than the compensation paid to certain judicial officials, including bankruptcy judges.

Because of that cap, the actual commission in many districts is much less than that 10% maximum. In districts where the Chapter 13 trustees are conduits for mortgage payments, for example, the total amount of money they collect and distribute is higher, and so their commission is lower. In other districts where debtors pay mortgage payments directly, the commission is generally higher. Generally, the more cases that are filed in a district, the lower the commission, but there can be exceptions to that notion. A district can have a high number of filings, but also a high percentage of dismissals, if the local economy is particularly bad.

One of the important ways that experienced bankruptcy counsel can help you is by familiarity with the trustee commission. Obviously, you don’t want to pay a higher plan payment than you need to pay. But, not only is that commission a factor in determining how much your Chapter 13 plan payments will be, it is also a factor in determining whether you qualify for Chapter 7.

Written by Spartanburg bankruptcy attorney Dana Wilkinson.

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