Do you have to pay a Chapter 13 trustee ten percent?

percentWhen bankruptcy debtors file Chapter 13 cases, they have to pay a fee, or commission to the Chapter 13 trustee that administers their case. This is how the trustee gets paid. The commission is typically ten percent of the payments made through the plan. So if a debtor’s plan calls for a monthly payment of $500, the plan usually will give the trustee $50 of that, and so on?

But is it possible to propose a lower payment?

A married couple in Massachusetts tried it recently — and lost. They proposed to pay the trustee 9% instead. The difference in payments was a whopping $10 per month. Over the five years of the plan, it came to $600 total. For that amount, the case went to court when the trustee protested.

The debtor’s argument was that trustees don’t actually get paid 10%. Instead, they are allowed a fee that changes from year to year, and is set by the federal government based on financial conditions. The maximum fee they can get is 10%, so that is what goes on the pre-printed forms that attorneys use. Recently, the actual fee trustees are allowed has been 8.75%. Any difference is used to pay a little more out to the creditors.

But in the Tagliavia case, bankruptcy court judge Melvin Hoffman decided that debtors in his court need to use the forms as they are and propose a trustee fee of ten percent. He said that the system would be unworkable otherwise, because plans would have to be constantly amended and the rate floats up and down.

The judge thought that would make a mockery out of the budgets that Chapter 13 debtors file with the courts: if they could be constantly manipulated to fit the trustee’s fee, it would give the impression that debtors weren’t being honest about their expenses in the first place.

So, at least in Judge Hoffman’s court, Massachusetts bankruptcy debtors need to plan on paying a ten percent fee to the trustee if they file a case under Chapter 13.

 

By Doug Beaton

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