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How Do Bankruptcy Trustees Get Paid?

Updated By Cara O'Neill, Attorney

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.

https://www.nolo.com/legal-encyclopedia/how-bankruptcy-trustee-paid.html