20 Aug Trustee Compensation – ND Illinois
How does the Trustee get paid in a chapter 7 case? Northern District of Illinois Bankruptcy Court Judge John Squires analyzed that issue in the case of In re Mervyn C. Phillips, Jr., 2008 WL 3319798 (Bankr.N.D.Ill.). There, Judge Squires ruled bankruptcy reform changes taking the trustee position out of 11 U.S.C. 330(a)(3) [professional compensation based on time], did not prevent a Court from determining the reasonableness of trustee fees based on the generally accepted lodestar approach – time expended and normal rate for such service. The trustee wanted the Court to award maximum compensation in every case based on a statutory formula without consideration of any mitigating factors.
Trustee compensation is determined by a percentage formula found at 326(a). The formula awards compensation based upon the amount of money distributed to creditors. There are 3 tiers of compensation. The first tier awards the trustee 25% of the initial $5,000.00 distributed. This caps out at $1,250.00. The second tier adds 10% of the next $45,000.00, capping out at $4,500.00. The final tier is based on 5% of the next $950,000.00.
Judge Squires noted that 11 U.S.C. 330(a)(2) permits a Judge to award less fees than requested; and Federal Rule of Bankruptcy Procedure 2016(a) requires a person seeking compensation from the estate to provide a detailed statement of time, services and expenses. His Honor determined the third tier of 5% was a maximum – to be awarded only in truly exceptional cases. He used a school grading system analogy to suggest a 5% award for “A” work, and lesser percentages as the quality of work and the degree of difficulty declines.
Andy Miofsky, Esq.
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