How Do Bankruptcy Trustees Get Paid?

The bankruptcy laws set out the manner in which bankruptcy trustees get paid for administering a case. Compensation amounts, sources, and payment methods differ depending on whether you're in Chapter 7 or Chapter 13 bankruptcy.

(You can learn about trustee duties, powers, and more in The Bankruptcy Trustee.)

How a Chapter 7 Trustee Gets Paid

In a Chapter 7 case, the trustee is paid in two ways depending on whether there are assets administered in your case, or not.

• $60 administration fee. First, the trustee receives a $60 administrative fee from the bankruptcy filing fees you pay to the court clerk when you file the case (as of June 2018). The trustee receives no administrative fee if the court waives the filing fee.
• Percentage of the bankruptcy assets. The other source of income for a Chapter 7 trustee is a commission on bankruptcy assets sold for the benefit of creditors. The trustee receives a portion of the profits. 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. The commission comes from the money collected from the sale of nonexempt assets (property that isn't protected from sale by a bankruptcy exemption) or the recoveries on lawsuits brought by the trustee.

The Trustee's Commission: A Sliding Scale

If the trustee collects assets in the case, sells them, and makes payments to creditors, the trustee also receives a commission on the money collected. The amount depends on the funds disbursed to interested parties (generally professionals and creditors). You don't make any extra payments to the court to cover the trustee's commissions in Chapter 7.

The sliding scale is 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.

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 the court holds a hearing 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 considered a commission under bankruptcy law, 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 Trustee Gets Paid for Sales Costs

The Chapter 7 trustee can also recover costs for expenses, such as professional accounting fees. But like the commission, 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.

How a Chapter 13 Trustee Gets Paid

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 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 doesn't need to obtain a court order before receiving payment, oversight for the fee exists.

Capping Maximum Percentage of Plan Payment

Under the bankruptcy law, 10% is the maximum percentage of any plan payment that can be used to compensate a trustee in Chapter 13. The trustee must use these fees for costs incurred in the case and the costs of running the trustee's office.

Limitation on Standing Trustee Salary and Budget Approval

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.

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 U.S. Trustee's office reviews budgets and, if approved, sets the maximum costs and compensation that the Chapter 13 trustee can recover.

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 the plan.

Updated: June 12, 2018