18 Dec What Do Chapter 7 Trustees Dream About? CASH!
Chapter 7 trustees are paid the small sum of $60 for administering each case. The real money a trustee makes is from finding and selling assets, and no asset is more favored than cash.
According to the statutory formula, in addition to the paltry fee of $60 per case, Chapter 7 trustees are paid a commission from distributions to creditors of liquidated assets recovered in cases:
25% of the first $5,000;
10% of the next $45,000;
5% of the next $950,000; and
3% of the balance.
Trustees love cash because cash is, by its very definition, already liquidated. There’s no realtor needed, no insurance to purchase, no storage to worry about, and no fees to be paid to sell cash. It’s already cash, and cash is king.
Why does this matter to you? If you’re filing bankruptcy, you get to claim exemptions in property of various types. Exemptions allow you to keep certain property. For example, in South Carolina where I practice, each debtor is allowed to protect up to $51,450 in equity in their residence. That allowance is what we call an exemption.
As you select exemptions, it’s important to apply those exemptions to the cash you have and by cash I mean bank accounts, tax refunds, and similar assets. Why? Because for other types of property, the trustee has costs of sale.
Let’s take one example. Suppose you have what we call here in South Carolina a “trash truck.” It’s a truck you use to haul trash and other items. It’s old, but it runs well. Let’s say it’s worth $2,000. You only have $2,000 left of an exemption, and you can use it for either this truck or $2,000 in a tax refund. The best approach would be to use the exemption for the tax refund, not the truck. Why? The trustee might only get $750 or so at auction for the trash truck. On top of that, he’ll have to pay other amounts, like a fee to the auction company, storage fees, and legal fees. You stand a good chance of him declaring the case a “no asset” case and not even bothering to sell the truck, since the profit margin is so low.
But what if the trustee decides to sell the truck despite the low profit he can make? Claiming your exemption in the cash instead still makes sense, because you could then offer the trustee a cash settlement to release the bankruptcy estate’s claim to the truck. In our example, maybe you’d offer $500. In any event, the trustee will take less than the $2,000.
One warning: If you have cash, don’t even think about hiding this from either your attorney or the trustee. Cash in the mattress, in a safe, in your brother-in-law’s house, or anywhere else is still your property. You must declare it in your bankruptcy case just like money in the bank. Failure to do so is bankruptcy fraud, which is a felony.
Remember: Trustees dream of cash. Plan your exemptions accordingly.
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