Filing Chapter 13 Bankruptcy? Who Pays The Bankruptcy Trustee?

When filing for bankruptcy, there is one thing that everyone has in common and that would be a bankruptcy trustee that is assigned to the debtor when the bankruptcy petition is filed. It doesn't matter whether you file Chapter 7 or Chapter 13 bankruptcy, your case will still be overseen by a bankruptcy trustee. When an individual files Chapter 7 bankruptcy the only time the debtor will see the trustee is at the 341 meeting unless there is a problem and they have to reschedule and come back. In a Chapter 13 bankruptcy the debtor will be dealing with the bankruptcy trustee during the entire 3 to 5 year process.

A Chapter 13 bankruptcy is a reorganization bankruptcy that includes a 3 to 5 year repayment plan that is negotiated by the debtor's bankruptcy attorney, the bankruptcy trustee assigned to the debtor's case, and the creditors. During a Chapter 13 bankruptcy the basic duties of the trustee, after setting up a payment plan, is to collect money from the debtor and distribute it to the debtor's creditors.

Most people think that the bankruptcy trustee is paid by the federal government and the courts. This is not true. In a Chapter 13 bankruptcy the trustee gets paid a percentage of what they collect from the debtor and distributes it to the creditors. If there is an overpayment the money will be refunded to the debtor. The bankruptcy trustee is only paid based on what the creditors get paid. The federal bankruptcy court system is made up of districts and the amount the trustee gets paid can vary from district to district with the maximum amount to be paid is 10%. Out of this money that they collect, they have to pay their own expenses to operate their office.

Many districts also have caps on the amount of compensation the bankruptcy trustee can make from a case. Many Chapter 13 bankruptcy cases involve mortgages and the payments are usually made through the bankruptcy trustee. This is why they have a cap. Mortgage payments can be quite expensive and using the 10% rule of everything that's paid out, the bankruptcy trustee stands to gain a substantial amount of money for managing the case if the caps were not in place. Because of this, some districts have it set up where the debtors pay the mortgage company directly. In these districts the commission is usually at the high end of the spectrum. Also, districts that have a large number of bankruptcy filings usually pay a lower percentage due to the high volume.

With all of the ins and outs and intricacies of Chapter 13 bankruptcy, it's important to have an experienced bankruptcy attorney represent you. Hiring a local bankruptcy attorney can be very beneficial as they have usually worked with the bankruptcy trustees for that district. They will know what the trustee wants and expects from a debtor. Going into bankruptcy blind is crazy and any leg up you can get can possibly save you thousands of dollars in the long run. When filing for bankruptcy, remember to always be honest with your bankruptcy attorney and the bankruptcy trustee. They're not out to get you, but to help you through this tough time in your life.