§ 54.2 — Compensation and Expenses of Chapter 13 Trustee after BAPCPA
Revised: July 3, 2007
The statutory provisions for compensation and expenses of Chapter 13 trustees are not changed by BAPCPA except with respect to judicial review of expense decisions by the U.S. trustee.
28 U.S.C. § 586(e) provides, without change, that the Attorney General, after consultation with the U.S. trustee, shall fix maximum compensation for a standing Chapter 13 trustee which, combined with actual necessary expenses, shall not exceed 10 percent of all payments received by the trustee in Chapter 13 cases.1 Anecdotally, it is reported that U.S. trustees across the Regions are not consistent in the amounts or categories of expense considered to be actual and necessary for § 586(e) purposes.
Before BAPCPA, it was not clear how a standing Chapter 13 trustee could/should challenge the denial by the U.S. trustee of a claim for expenses. BAPCPA added a new subsection (3) to § 586(e):
After first exhausting all available administrative remedies, an individual appointed under subsection (b) may obtain judicial review of final agency action to deny a claim of actual, necessary expenses under this subsection by commencing an action in the district court of the United States for the district where the individual resides. The decision of the agency shall be affirmed by the district court unless it is unreasonable and without cause based upon the administrative record before the agency.2
It will be a rare circumstance when the denial by the U.S. trustee of an expense claim by a standing Chapter 13 trustee will warrant exhaustion of administrative remedies and filing an action in district court. At this writing, the administrative procedures to implement this section are not finally prescribed by the Attorney General.3
Elsewhere, BAPCPA mentions compensation of Chapter 13 trustees without a clear message. When a Chapter 13 debtor has current monthly income (CMI) greater than applicable median family income, upon objection to confirmation the disposable income test in § 1325(b)(3) directs that “amounts reasonably necessary to be expended—” are determined in accordance with § 707(b)(2)(A) and (B).4 Under § 707(b)(2)(A)(ii)(III), monthly expenses may include “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, as determined under schedules issued by the Executive Office for United States Trustees.”5
The “actual administrative expenses of administering a chapter 13 plan for the district” is either a mistaken description of a factor that is already calculated for each judicial district or it is the description of something new that may not be easily calculated at all. Chapter 13 plans have “administrative expenses” of the customary sort described in § 503(b)(1),6 and then there is the percentage fee for compensation and expenses allowed the standing trustee. As mentioned above, under 28 U.S.C. § 586(e)(1), the Attorney General of the United States fixes a maximum annual compensation for each standing Chapter 13 trustee and together with “actual, necessary expenses” allows the collection of a percentage from all payments received by the standing trustee not to exceed 10 percent.7 The actual and necessary expenses of a Chapter 13 trustee are not recovered by request under § 503(b). Neither does 28 U.S.C. § 586(e), purport to address “ordinary” administrative expenses such as attorneys fees.
The phrase “actual administrative expenses” in § 707(b)(2)(A)(ii)(I) is at least confusing. Does actual administrative expenses in this context include the maximum annual compensation fixed by the Attorney General under 28 U.S.C. § 586(e)(1)(A)? The reference to “up to an amount of 10 percent” suggests the combined compensation and actual and necessary expenses that a standing Chapter 13 trustee collects from payments received from debtors. But “projected plan payments” in new § 707(b)(2)(A)(ii)(III) could mean payments by debtors directly to creditors, payments by debtors to the trustee, payments by the trustee to creditors or some of all three. The differences could be mathematically significant.
None of this directly affects the compensation and expenses recoverable by a standing Chapter 13 trustee under 28 U.S.C. § 586(e), but Chapter 13 debtors with CMI greater than applicable median family income must know the percentage determined for the district by the Executive Office for the United States Trustees to calculate projected disposable income in accordance with § 707(b)(2)(A) and (B). Will the percentage determined by the Executive Office for United States Trustees be the combined compensation and actual, necessary expense percentage allowed in the district, or will it be some other amount reflecting the “actual administrative expenses” for the district—whatever that is? It is unlikely that any number supplied by the U.S. trustee will include administrative expenses of the § 503(b) sort.
The actual percentage allowed Chapter 13 trustees for compensation and expense reimbursement varies dramatically across the country and from year to year within a district. In some districts, the percentage is between 3 and 4 percent of receipts; in other districts, it is the maximum 10 percent.
It is not logical that the test for “abuse” in Chapter 7 cases in a district—the test in § 707(b)(2)(A)—will vary from district to district depending on the percentage of compensation and expenses collectible by the standing Chapter 13 trustee. The efficiency of the Chapter 13 program in a district has no obvious relationship to whether a Chapter 7 debtor’s petition is an abuse of the provisions of Chapter 7. If the Chapter 13 trustee in a district is allowed the maximum 10 percent reimbursement for “actual administrative expenses,” a Chapter 7 debtor can deduct that maximum percentage of “projected plan payments” for purposes of the abuse test in § 707(b)(2)(A). Ironically, Chapter 7 cases in a district are less likely to be presumably “abusive” if the operating costs of the Chapter 13 trustee’s office in the district are higher. Identical Chapter 7 debtors in adjoining judicial districts will have unequal access to Chapter 7 based on the complete happenstance that the Chapter 13 trustee in one district has higher operating expenses than the Chapter 13 trustee in the other district. This makes no sense but is an inevitable consequence of the strange expense deduction in § 707(b)(2)(A)(ii)(III).
There is a different kind of illogic in the way this “administrative expense” deduction works in Chapter 13 cases. Identical Chapter 13 debtors with CMI greater than applicable median family income filing in different districts will have different projected disposable incomes for purposes of confirming plans based on any difference in the maximum reimbursement allowed in each district by the U.S. trustee for 28 U.S.C. § 586(e) purposes. If one trustee is less efficient than the other, the amount that must be paid to unsecured creditors will go down. This was the effect of differing trustee efficiencies prior to BAPCPA, but it is now codified as a difference in the expense deductions to determine amounts reasonably necessary to be expended for Chapter 13 debtors with CMI greater than applicable median family income.
1 28 U.S.C. § 586(e)(1) and (2), discussed in § 54.1 Standard Percentage Fee and Expenses.
2 28 U.S.C. § 586(e)(3).
3 See 28 U.S.C. § 586(e)(4) (“The Attorney General shall prescribe procedures to implement this subsection.”).
5 11 U.S.C. § 707(b)(2)(A)(ii)(III), discussed in § 482.1 [ Administrative Expenses, Sorta ] § 95.25 Administrative Expenses, Sorta.
7 28 U.S.C. § 586(e)(1), discussed above in this section and in § 54.1 Standard Percentage Fee and Expenses.