A lot of people don’t realize it but in a chapter 13 case the “standing” trustee who administers the funds in a chapter 13 reorganization does charge a fee for their services. Currently in Minnesota it is 5.3%. By statute it can range as high as 10%. The trustee’s fee is set by the Attorney General and it can change from time to time. When we draft chapter 13 plans the fee that the trustee will assess is always one of the things that has to be factored in. The trustee, of course, gets paid before anyone else does….LOL….as they have the luxury of managing the money. In general, the larger amount of cases that are filed the lower the percentage fees as there is some economy of scale.
There are two standing chapter 13 trustees in Minnesota. One handles the vast majority of cases filed which are not surprisingly in the twin cites and surrounding geographical areas. The second handles the “outstate” cases.
Why do they charge fees? Well……there is a fairly large support staff. In the Minneapolis office where the majority of the cases that I file are managed that would include two attorneys with paralegal support working directly for the trustee. Include as well a small army of clerical staff to manage all the accounting and disbursement tasks. That requires a fairly sizable investment in office space and up to date technology is involved to manage the thousands of chapter 13 cases that they have going on at any one time well. The funds to do so comes from the debtors engaged in chapter 13. So…for every dollar that is paid in the trustee takes out the allowed percentage to fund their operation.
When I draft plans I will usually be within a point of two of the current allowed fee when I calculate the trustee’s fee. However, there is always a provision included that states that the trustee can take up to the 10% allowed by statute as no one knows whether the fees will go up in the minimum 3 to maximum 5 year duration of a chapter 13 plan. That means the plan must be funded at a high enough level to take care of that contingency should it arise. If during the course of a plan the fee goes up what happens is that some of the money that would have gone to pay on general unsecured creditors claims will be diverted to take care of the necessary trustee fees. Similarly that is what happens when unanticipated attorney fees are generated too or perhaps a priority tax claim came in higher than what the debtor had initially estimated.
Good news to see the 5.3% number currently. It hovered a just over 7% for quite a while. Frankly, I’ve been filing chapter 13 cases for over 20 years now and I don’t recall a time when it was hit the 10% mark.
If you’ve got questions about either chapter 7 or chapter 13 bankruptcy cases we’d be happy to speak with you.
Connect with David Kingsbury at the Kingsbury Law Offices located in Apple Valley and Rochester, Minnesota. Visit our website www.bankruptcylawofficemn.com