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).