The bankruptcy laws set out the method and the maximum compensation levels for bankruptcy trustees. Compensation amounts, methods, and sources differ depending on whether you are in a Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Trustee Compensation
In a Chapter 7 case, the trustee is paid in two ways depending on whether there are assets administered in your case, or not.
Administrative Case Fee
First, the trustee receives a $60 administrative fee which is paid from the filing fees you pay to the court clerk when you filed the case. In cases where the filing fee is waived, the trustee receives no administrative fee.
No Assets, No More Fees for the Trustee
If there are no assets in the case for the trustee to sell and the trustee does not recover any other money through tax refunds, lawsuits, or other actions, there is no further fee paid to the trustee.
Commission Based on a Sliding Scale
If there are assets that the trustee collects in the case and the trustee makes payments to creditors, the trustee also receives a commission on the money collected based on the amount disbursed to interested parties (generally professionals and creditors) by the trustee. The commission is paid from the money collected from the sale of nonexempt assets or the recoveries on lawsuits brought by the trustee. You do not make any extra payments to the court to cover the trustee’s commissions in a Chapter 7.
The amount the trustee is paid is based on a sliding scale as follows:
- 25% of the first $5,000 disbursed
- 10% of the next $45,000
- 5% of the next $950,000, and
- 3% of anything over $1,000,000.
The sliding scale is set as the maximum amount of the trustee’s compensation. In order to be paid, the trustee must file an application for compensation with the bankruptcy court. All creditors and interested parties receive notice of the amounts requested. If no one objects, or after a hearing is held on any objections filed, the court reviews the trustee’s fee application and enters an order awarding the fee that the court finds reasonable.
Since the trustee's fee is defined by the bankruptcy law as a commission, the maximum allowable is often awarded if no objection is filed. However, in cases where the commission is very large in comparison to the work required, or there was a substantial delay in the administration of the estate due to inaction or another problem in trustee’s office, the court may award a fee less than the maximum allowed.
The Chapter 7 trustee can also recover costs from the estate but, like the fees, this can only happen after the trustee files a fee application and request for reimbursement of costs and it is approved by the court after notice to all parties in the bankruptcy case.
Chapter 13 Trustee Compensation
Most Chapter 13 trustees are "standing trustees," which generally means that serving as a Chapter 13 trustee comprises all or a large part of their business. With few exceptions, all of the Chapter 13 cases filed in the district are assigned to these standing trustees.
The compensation to standing trustees is part of the plan payment you make every month under Chapter 13. The compensation varies by trustee and, although the trustee does not need to obtain a court order before receiving payment, the fee is controlled in three ways.
Capping Maximum Percentage of Plan Payment
Under the bankruptcy law, 10% is the maximum percentage of any plan payment that can be used for Chapter 13 compensation. This includes costs incurred in the case, the costs of running the trustee’s office, and costs of professionals hired by the trustee.
Limitation on Standing Trustee Salary
The amount of the money used to pay the yearly salary of the Chapter 13 trustee (exclusive of costs) is limited to the amount set for a federal government employee being paid at Executive V level plus the cost of benefits. Currently the Executive V level compensation is approximately $145,000.
Periodically, the standing Chapter 13 trustee must file proposed operating budgets with the Office of the United States Trustee, a division of the Department of Justice. The budgets are reviewed and, if approved, set the maximum costs and compensation that can be recovered by the Chapter 13 trustee.
These budgets include the costs of operating the trustee’s office, and employee salaries, including professional salaries for attorneys and accountants. Once a budget is approved, the trustee is authorized to collect a set percentage (which can be up to 10%) to cover the trustee’s salary and costs from the plan payments.
The approved percentage is adjusted up or down from time to time to account for fluctuations in Chapter 13 filings and may change during the lifetime of your plan.