How is the Chapter 7 Trustee Paid? | Jeff Kelly Law Offices

How is the Chapter 7 Trustee Paid?

Chapter 7 is just one of the options available when dealing with bankruptcy. In comparison to a Chapter 13, a filer under a Chapter 7 bankruptcy does not create a plan of repayment. It is often referred to as a straight bankruptcy because it does not require additional steps. In a sense, it gives the filer a fresh start to their finances.

Considering that much of the filer’s debt is eliminated under a Chapter 7, some wonder how the trustee is paid. First, the trustee is appointed to sell off assets and repay any parties in interest.

There are a few methods in which the Chapter 7 trustee is then paid. The bankruptcy trustees will often collect any administrative fees involved in the cases filed. Filers are often required to pay filing fees when seeking either a Chapter 7 or Chapter 13 bankruptcy.

It is also possible that the trustee will collect a percentage once they liquidate assets. The trustee, in this case, collects all assets, handles the distribution to creditors, and collects a percentage of the distributed funds. The trustee may be eligible to collect a portion of those assets if it is approved by the bankruptcy court. If there are no assets to be sold, it is possible that the trustee will not collect anything.

In order to collect compensation from the sold assets, the trustee will need to submit an expense form with the court. This expense form will include things like accounting costs, administrative fees, and legal fees. Some costs will be approved while others are denied and the trustee receives only the costs approved.

Finally, the chapter 7 trustee may be paid on a sliding scale. After the sale of collected assets is completed, the trustee may be eligible to collect a scale of the income. This compensation does not come from the filer but instead, from the parties collecting the income. This might include debtors, investors, or another operating business that is owed.

Advantages of a Chapter 7 Case

There are advantages and disadvantages to both types of bankruptcy chapters. Advantages of a Chapter 7 filing include a shorter filing process, exemptions that could allow you to keep property and income, and the ability to begin rebuilding your credit within a few years of filing.

Potential disadvantages include the record of the bankruptcy on your credit report for up to 10 years, the potential to lose any property that is not exempt in the bankruptcy case, and you might have to hold off on obtaining a mortgage for a few years. Additionally, a Chapter 7 filing will not eliminate some types of debt including student loans, child support, alimony payments, back taxes, retirement accounts, and previous legal fees.

Of course, there are also advantages and disadvantages to filing a Chapter 13 case. Chapter 13 usually involves a restructuring of debt payments. Instead of eliminating debt, the filer is required to make one payment to the trustee which is ten divided among the different debtors.

Eligibility to File a Chapter 7

Unfortunately, not everyone is eligible to file a Chapter 7. You cannot file for a Chapter 7 bankruptcy if you have previously violated a court bankruptcy code or you have filed for any type of bankruptcy in the last six years. It is also possible that depending on your financial situation, you would only be approved for a Chapter 13 and not a Chapter 7.

It is best to discuss your bankruptcy options with a lawyer before beginning the filing process. Receiving a denial can prevent you from filing again, even under a different type of bankruptcy chapter.

How to Avoid Bankruptcy

Filing for bankruptcy should be carefully considered before taking action. Bankruptcy can affect your credit score and your ability to take out additional loans. You will also be required to explain your financial situation to the judge and lay out any plans to prevent it from happening again. Every bankruptcy case is different. It might be possible to avoid bankruptcy or filing for a Chapter 7 bankruptcy might be the best option for your financial situation.

This is not meant to act as legal advice. If you are considering filing for bankruptcy to solve your financial concerns, call the Law Offices of Jeffrey B. Kelly today. We can assist you in understanding your filing options and determining if filing for bankruptcy makes sense for you.