§ 54.3     Lowered Percentage in a Case
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 54.3, at ¶ ____, LundinOnChapter13.com (last visited __________).

In a few reported cases, the Chapter 13 trustee has been permitted to adjust the percentage deduction for compensation and expenses in individual cases to reflect especially large payments. For example, it was held in a Chapter 13 case of a debtor engaged in business, the percentage fee could be equitably adjusted downward to avoid excessive fees to the Chapter 13 trustee.1 Home mortgage payments are large relative to other payments to creditors. Application of the standard percentage fee to a monthly mortgage payment generates a great deal of expense money for little or no additional work. Reduction of the percentage fee on a case-by-case basis prevents inequities for debtors with a large payment.


Prior to the 1986 amendments to 28 U.S.C. § 586(e),2 several courts permitted a lowered percentage on payments by the debtor acting as a disbursing agent for the current mortgage payments.3


In particularly tight cases, the Chapter 13 trustee may want to consent to a lower percentage if the amount of money passing through the case is sufficient to allow the case to bear its fair share of administrative expenses at a lower rate. However, the current Justice Department Handbook for Chapter 13 Trustees instructs that a Chapter 13 trustee has no authority to negotiate a percentage fee in an individual case other than the percentage fixed for the district.4


1  In re Eaton, 1 B.R. 433 (Bankr. S.D. Cal. 1980).


2  Prior to amendment in 1986, 28 U.S.C. § 586(e)(2) directed a standing Chapter 13 trustee to collect the percentage fee “from all payments under plans” in cases assigned to the trustee. In 1986, 28 U.S.C. § 586(e)(2) was amended to require the trustee to collect the percentage fee “from all payments received by” the trustee in cases assigned to the trustee. This changed the payment base to which the percentage fee of a standing trustee applies; however, the 1986 change in wording did not obviously affect whether the percentage fee can be adjusted on a case-by-case basis. See also § 64.4 [ Compensation on Direct Payments by Debtor ] § 54.6  Compensation on Direct Payments by Debtor.


3  See Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. 1982); In re Mascari, 70 B.R. 325 (Bankr. N.D.N.Y. 1987); In re Tartaglia, 61 B.R. 439 (Bankr. D.R.I. 1986). See also In re Weber, 114 B.R. 194 (Bankr. D. Neb. 1988) (Without discussion of the 1986 amendments to 28 U.S.C. § 586(e), “The trustee is not . . . always entitled to the maximum percentage fee allowable under 11 U.S.C. § 326. This is certainly the case when the trustee does not act as paying agent for claims paid directly to the creditor by the debtor.”); § 64.4 [ Compensation on Direct Payments by Debtor ] § 54.6  Compensation on Direct Payments by Debtor.


4  Executive Office for U.S. Trustees, U.S. Dep’t of Justice, Handbook for Chapter 13 Trustees, 11-1 (1998).