The Trustee’s Fee and Plan Feasibility

When you are calculating what it takes to make a plan feasible, you have to know how to account for the trustee’s percentage fee.

My office’s percentage fee (for now) is 6.8% of receipts.  That means if a debtor’s plan payment is $100, I take $6.80, which leaves $93.20 available to disburse to creditors.

But more often than not, you are trying to figure out how much the debtor’s payment needs to be in order to pay a certain amount of claims through the plan plus my fee.  To do that, you need to add about 7.3% to the amount of claims in order to come up with the “pool” amount necessary to pay the claims and my 6.8% fee on receipts.

When I say claims, I mean the total of: principal amount of secured claims to be paid through the plan, projected interest, priority claims, attorney’s fee, and any amount of general unsecured claims that needs to be paid.

Unless the debtor is on a very tight budget, you can’t go wrong with using an 8%, 9%, or even 10% fee when you are calculating what it will take to fund the plan.

Why use a higher fee?  Let’s assume you use a 60-month amortization schedule to calculate interest and a 7.3% multiplier for my fee.  If during the case the debtor is slow or late with plan payments, interest on secured claims will continue to accrue, and the case is not going to pay out in 60 months because of that additional interest.  Now your plan is no longer feasible.  Using an 8% to 10% fee in your calculations helps build in a cushion for that additional interest.

If you think 8% is going to yield an unnecessary windfall to unsecured creditors while making it difficult for your clients to make ends meet, then try 7.5% or 7.8%.

But whatever you do, even if the debtor is on a shoestring budget, don’t add 6.8% (my fee) to the amount of claims and expect to have a feasible, adequately funded plan.  The math doesn’t work.  Use 7.3%.

(If you really want to know why you have to pay 7.3% of claims to cover a 6.8% fee on receipts, let me know and I’ll show you the math.  The exact multiplier is .07296137).

(Additional note:  when I speak of “feasibility,” I’m talking about whether a plan is adequately funded to pay all necessary claims within the plan duration.  The term “feasibility” is also used by courts in discussing whether a debtor can afford to make plan payments).

 

4 comments

  1. I noticed you show your trustee’s percentage fee @ 6.8%. I get conflicting info on this sometimes. The U. S. Trustee’s website is showing it @ 6.1% beginning 5/2106. Would you clarify, please? Thanks!

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    1. Great question. The UST does a calculation of the cost of administering a chapter 13 case for purposes of the “means test.” That is not necessarily the chapter 13 Trustee’s current percentage fee. So you have to use the UST’s number in the means test and use the trustee’s fee in your plan calculations. For other jurisdictions, contact the Trustee’s office and ask what their fee and multiplier are. Thanks for pointing out the different numbers!

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      1. I notice on your home page you announce your current percentage fee as the 6.8% figure as of 10-1-15. I don’t ordinarily have occasion to go to your home page, but is that where I should go to find your current percentage fee announced periodically if I am uncertain about the amount? I am thinking you probably send us bankruptcy attorneys these announcements anyway, unbidden, and probably sent this one to us prior to last October, in which case I had just noted it but subsequently forgotten. I also checked and discovered that Best Case follows your suggestion and sets the fee at 10 % by default, subject to change by the attorney, if there’s reason for that change.

        I think your fee is periodically adjusted, and, if that is the case, is 10 % always a safe figure to use, even if your fee increases beyond 6.8 %?

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      2. The fee cannot exceed 10%, and using 10% as a default number will build in a little bit of a cushion to make the plan feasible. Some attorneys don’t like using a larger fee than necessary because they think that any “extra” will go to unsecured creditors, paying more than would be required under the disposable income test or liquidation test. Usually, though, the difference, if any, is at most a few hundred dollars. Often those few extra dollars make a difference between a feasible plan and a nonfeasible plan, so 10% is a safe figure to use. However, a few hundred dollars for someone trying to save a home and make ends meet can make it difficult for a debtor to afford plan payments, so 10% might not be practical in all cases. I would not set the default rate at anything less than 8% (to reiterate, this is just for EDKY).

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