§ 136.5 — Trustees’ Fees and Expenses after BAPCPA

Revised: March 29, 2006

[1]

The treatment of trustee compensation and expenses in Chapter 13 cases is ambiguous.1 Because the compensation and expenses of a standing Chapter 13 trustee are fixed by the Attorney General under 28 U.S.C. § 586(e) and are not awarded by the bankruptcy court under 11 U.S.C. § 330(a), it is arguable that the compensation and expenses of a standing trustee are not administrative expenses under § 503(b).2

[2]

That being said, courts routinely treat the compensation and reimbursement of expenses of standing trustees like administrative expenses, and at least two provisions of BAPCPA will contribute to this confusion.

[3]

For Chapter 13 debtors with current monthly income (CMI) greater than applicable median family income, “amounts reasonably necessary to be expended—” for purposes of the disposable income test in § 1325(b) are determined in accordance with § 707(b).3 Among the monthly expenses allowed by § 707(b)(2)(A) are “the actual administrative expenses of administering a Chapter 13 plan for the district in which the debtor resides, up to an amount of 10 percent of the projected plan payments.”4

[4]

Use of the phrase “actual administrative expenses” and the reference to an amount up to 10 percent of projected plan payments suggest that the drafters of this section of BAPCPA had 28 U.S.C. § 586(e) in mind. If the phrase “administrative expenses” in new § 707(b)(2)(A)(ii)(III) is the same term of art used in § 503(b) and § 507(a)(2) to describe the second priority, then BAPCPA could be read to support the view that the percentage for compensation and expenses allowed to a Chapter 13 trustee by 28 U.S.C. § 586(e) is an expense of administration entitled to priority and full payment in a Chapter 13 case.

[5]

There may be further support for this view in the treatment of domestic support obligations (DSO) by BAPCPA. BAPCPA elevated to first priority allowed unsecured DSO claims.5 Within that first priority, BAPCPA carved out the following administrative expense allowance for the trustee:

(C) If a trustee is appointed or elected under section . . . 1302, the administrative expenses of the trustee allowed under paragraphs (1)(A), (2), and (6) of section 503(b) shall be paid before payment of claims under subparagraphs (A) and (B), to the extent that the trustee administers assets that are otherwise available for the payment of such claims.6
[6]

Chapter 13 trustees—whether serving in a specific case or serving as a standing trustee—are appointed under § 1302(a).7 Although there is no cross-reference to 28 U.S.C. § 586(e) in § 507(a)(1)(C), it is possible to find intent in this new section to allow administrative expenses to a standing trustee for administering the assets of a Chapter 13 estate that would be available for the payment of a DSO claim. In a Chapter 13 case, the postpetition earnings of the debtor and the portion of those earnings that is paid to the Chapter 13 trustee for distribution to creditors are assets of the Chapter 13 estate that are “otherwise available” for the payment of a DSO claim. The obvious problem is that there is still no solid link between administrative expenses allowed under the various subparagraphs of § 503(b) and the percentage for compensation and reimbursement of expenses allowed to a standing Chapter 13 trustee under 28 U.S.C. § 586(e).

[7]

Standing Chapter 13 trustees will reasonably complain that if § 507(a)(1)(C) is not interpreted to include the administrative expenses of a standing trustee, the standing trustees are forced to collect funds from debtors and administer cases in which DSO claims are paid without assessing administrative expenses against the payment of a DSO claim. This is a possible interpretation of new § 507(a)(1)(C): a trustee appointed in an individual Chapter 13 case under § 1302(a) is entitled to be paid administrative expenses allowed under § 503(b) before payment of a DSO claim, but a standing trustee is not entitled to allowed compensation and expenses under 28 U.S.C. § 586(e) before payment of a DSO claim.

[8]

This could be a significant issue for Chapter 13 debtors who want to pay a DSO through the Chapter 13 plan. Not unlike payment of a home mortgage through the Chapter 13 trustee,8 payment of a DSO through the Chapter 13 trustee has many beneficial effects but can be costly for the debtor if the Chapter 13 trustee takes a full percentage for compensation and expenses from each DSO payment. If compensation and reimbursement of expenses of a standing Chapter 13 trustee are not administrative expenses paid before payment of a DSO under § 507(a)(1)(C), then debtors will argue that trustees should handle the payment of DSOs without deducting the percentage allowed in the district under 28 U.S.C. § 586(e). For many good reasons, standing Chapter 13 trustees may acquiesce in the payment of DSO claims without the assessment of the usual percentage fee. But it has to be said that there is no exception to the percentage fee for compensation and reimbursement of expenses allowed by 28 U.S.C. § 586(e) for payments of a DSO claim. In other words, even if the percentage for compensation and reimbursement of expenses of a Chapter 13 trustee is not an administrative expense for purposes of § 507(a)(1)(C), 28 U.S.C. § 586(e)(2) still directs the standing trustee to collect the percentage fee “from all payments received by” the trustee under plans under Chapter 13.

[9]

BAPCPA has added fuel to the debate whether the percentage fee for compensation and reimbursement of expenses of a standing Chapter 13 trustee is an administrative expense under § 503(b) entitled to second priority under § 507(a)(2). New § 707(b)(2)(A)(ii)(III) signals that the percentage for compensation and reimbursement of expenses of a standing Chapter 13 trustee is an administrative expense; new § 507(a)(1)(C) is at most ambiguous with respect to the issue.


 

1  See § 293.1 [ Trustee’s Fees and Expenses ] § 136.4  Trustee’s Fees and Expenses before BAPCPA.

 

2  Id.

 

3  See 11 U.S.C. § 1325(b)(3), discussed in §§ 466.1 [ In General ] § 92.1  In General, 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors and 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

4  11 U.S.C. § 707(b)(2)(A)(ii)(III), discussed in § 482.1 [ Administrative Expenses, Sorta ] § 95.25  Administrative Expenses, Sorta.

 

5  See 11 U.S.C. § 507(a)(1), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

6  11 U.S.C. § 507(a)(1)(C), discussed in § 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

7  See §§ 58.2 [ Who Will Be the Trustee? ] § 53.2  Who Will Be the Trustee? and 58.3 [ Removal and Liability of a Trustee ] § 53.3  Removal and Liability of Trustee.

 

8  See § 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee.