How Does The Chapter 13 Bankruptcy Trustee Get Paid?

May 5th, 2010 by Reed Allmand

When a debtor files Chapter 13 bankruptcy, he/she is has a bankruptcy trustee appointed to their case.  The bankruptcy trustee is responsible for collecting payments from the debtor and distributing that money to creditors involved in the bankruptcy case. But what many debtors don’t know is that the Chapter 13 bankruptcy trustee gets paid through a percentage of the money he/she collects and distributes to the creditors in the bankruptcy case.   Here’s what debtors need to know:

1. While the Chapter 13 bankruptcy trustee receives a percentage of the money he/she collects and distributes to creditors, that commission percentage can vary from district to district and change over time.  Also, a bankruptcy trustee can only collect a maximum commission of 10 percent.
2. Although the bankruptcy trustee receives a percentage of the money collecting from the debtor and distributed to the creditors, the total amount of compensation that can be paid to the bankruptcy trustee is capped.
3. If a bankruptcy trustee inadvertently collects too much from a debtor, he/she must refund that money.
4. The bankruptcy trustee is only paid a percentage of what he/she distributes to the creditors.  In other words, the less the debtor pays in his/her Chapter 13 bankruptcy repayment plan, the less the bankruptcy trustee will receive.

Once the debtor understands how bankruptcy trustee payment works, he/she will better understand that the bankruptcy trustee is primarily present to insure that creditors are paid the maximum possible under the bankruptcy law.  Debtors who represent themselves or work with inexperienced counsel are particularly vulnerable because there is very little incentive and no obligation for bankruptcy trustees to educate debtors (and their counsel) who fail to fully exploit the advantages bankruptcy offers.

About Reed Allmand

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Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."

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