Ch. 7 Trustee Gets Full Commission, More Than Hourly Rate

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By Daniel Gill

May 19 — A Chapter 7 trustee was entitled to be compensated the maximum statutory commission, notwithstanding that the amount exceeded what she would be paid if compensation were based on hours expended, the U.S. Bankruptcy Court for the Central District of Illinois ruled May 17.

Chief Judge Mary P. Gorman of the U.S. Bankruptcy Court for the Central District of Illinois overruled the objection of creditors to the application for compensation submitted by the Chapter 7 trustee. She clarified that a Chapter 7 trustee's compensation must be commission-based, although special circumstances may support a reduction from the statutory maximum fixed by Section 326 of the Bankruptcy Code.

Model Trustee

Pearson Brothers Construction, Inc. filed a voluntary Chapter 7 petition on May 4, 2015, listing among its assets cash, accounts receivable, and tools and equipment. In Chapter 7, a debtor's nonexempt assets are liquidated by a trustee, and the property of the estate is distributed to creditors.

The court explained that the record showed that Kristin Wilson, the trustee appointed in the case, was diligent, acted expeditiously and did “high quality” work. The court noted that the trustee began work on the case the day after it was filed and had successfully administered the estate within only eight months, accounting for all the assets listed by the debtor and discovering and recovering assets which had not been disclosed.

Moreover, the court appeared impressed by the fact that the trustee did not hire herself or any other attorneys to recover any of the assets, thereby sparing the estate (and its creditors) any additional administrative expenses. Allowed administrative expenses are paid in full before general unsecured creditors share in any distribution of estate property.

The trustee collected more than $182,000 of assets. For her services, the trustee filed an Application for Compensation on March 10 seeking $12,362 in fees and reimbursement of $210.12 for out-of-pocket expenses. The court said that the requested fee was approximately 6.8 percent of the amounts administered by the estate, in accordance with Section 326(a) of the Code.

Services Worth Less on Hourly Basis

Two (apparently the only two) creditors filed a joint objection to the trustee's request for compensation. The crux of their argument was that the trustee had filed time records indicating she had expended only 13.39 hours in the case. Bankruptcy Rule 2016 requires all professionals seeking compensation, including trustees, to submit time records.

The creditors argued that rather than receive a statutory commission, the trustee should be limited to a fee of $2,678, the time expended at a $200 rate. The court did not discuss how the creditor determined the hourly rate it proposed.

Trustee Fees Must be a Commission

Citing a ruling in a prior case which was relied on by both the trustee and the creditors, In re Luedtke (Bankr. C.D. Ill. 2011), the judge explained that although courts can consider a trustee's time records among many factors in determining what is reasonable compensation, “it is clear that all Chapter 7 trustee compensation must be calculated and awarded on a commission basis,” as required by the black letter of Section 330(a)(7) of the Code.

The judge said that there may be “extraordinary circumstances” which justify awarding a commission at something less than the maximum percentage allowable under Section 326(a), but that none of those circumstances existed in the case.

What Were They Thinking?

Judge Gorman described the trustee's services as exemplary, noting that she “handled this case in an extremely efficient manner resulting in significant benefit to the objecting creditors.” She said that the trustee's request for only $12,362.36 was “reasonable by any standard,” and she expressed surprise that the matter was even brought before her by the creditors' objection.

“All in all,” she said, “it is hard to understand why the [creditors] are complaining.”

The trustee, Kristin Wilson, Charleston, Ill., appeared on her own behalf. The objecting creditors were represented by James R. Kimmey, Cavanagh & O’Hara LLP, Fairview Heights, Ill, and the debtor was represented by Jared Lee Trigg, Acton & Snyder, LLP, Danville, Ill.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com