If you are wondering how a Chapter 7 Trustee makes money from Bankruptcy cases, here is the answer. They typically get paid in several ways. First, they get $60 from the filing fee for each of their cases. If there is a fee waiver in the case, they get nothing. Most Chapter 7 cases are “no asset” cases, and that is all the Trustee gets for the case. Since they must use those funds to pay their own office and employee expenses, Trustees do not really make a profit on “no asset” cases. To the contrary, it is probably a loss leader for most of them so they can get the occasional “asset case.”
An “asset case” is one in which the Trustee is able to liquidate assets and distribute some money to creditors. Trustees earn a “commission” on assets they recover and distribute to creditors. The commission (set forth in Section 326 of the Bankruptcy Code) is: 25% of funds up to $5,000; 10% of funds between $5,000 and $50,000; 5% of funds between $50,000 and $1 million, and “reasonable compensation” of up to 3% on funds over $1 million. As with any Bankruptcy case, all compensation is subject to review by the U.S. Trustee and approval by the Bankruptcy Judge. If, for example, a Trustee get a case with a $5 million house to sell, the Court will likely consider whether a full commission of some $170,000+ is reasonable. Likely, the commission would be significantly reduced. It is more common that the Trustee has to put in significant time to get a much smaller commission in much smaller cases.
Finally, Chapter 7 Trustees are mostly lawyers and, in a few instances, accountants. They are usually allowed to hire their own firms to act as lawyers and accountants in the cases and they bill their normal hourly rates for such work. The U.S. Trustee’s office is diligent in making sure that the Trustees do not shift their Trustee duties to hourly lawyer or accountant time in order to increase their compensation.
An appointment as a Chapter 7 Trustee is generally not a way to get rich and most Trustees are solo lawyers or at small firms because the income does not support large firm expenses. They have strict accounting requirements and are regularly audited by the U.S. Trustee. For these reasons, most Trustees will not even consider a case in which they cannot clear at least $10-15,000 or more for the estate and creditors. The burden of keeping a case open for a year or more for a small commission is not worth their time and expense.