A man alleged that the Chapter 7 trustee in his case was unlawfully selling property that he, the debtor, did not own. A man seeking to ridicule the debtor stated that Chapter 7 trustees do not financially benefit in administering cases. His impression was that Chapter 7 trustees only sell property to pay debts declared in the bankruptcy. HE WAS WRONG!

Chapter 7 trustees receive $60.00 for presiding at the Section 341 Meeting of Creditors for a no-asset case. This fee is paid from the filing fee that is paid when the debtor files their Chapter 7 bankruptcy petition. According to some sources, the average Meeting of Creditors is approximately 5 minutes. Therefore, a trustee can easily hold 12 Creditor Meetings in the course of one hour, averaging $720 an hour.

A Chapter 7 trustee that is appointed to 50 cases during the three-day rotation earns $3,000 for approximately three hours of work. Okay, let's stretch it out and say that they spend four hours for presiding at 341 Meetings of Creditors. They would still earn $3,000. Out of the 50 cases, there might be one asset case. The trustee files the no-asset reports for no-asset cases and collects his $60 per case.

The trustee has already been compensated by having cases that will not require any additional time other than filing a no-asset report and closing the case.

Compensation allowed pursuant to 11USC Sec. 326 is more commonly termed "incentive commission," or "recovery commission." The commission is on a sliding scale;

reasonable compensation not to exceed 3 percent of such moneys in excess of $1,000,000, upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.

Is it lucrative for the trustee to sell property? Yes, and also lucrative for the realtor. Realtors stand a greater financial benefit than most debtors. The federal homestead exemption is $7,500 in a single case; $15,000 for a joint case. Unless you live in a State such as Arizona, Florida, California, or Texas, the realtor stands to earn more in commission than the homestead exemption provided to debtors.

For example, a realtor charging 6% commission earns $18,000 for selling a home for $300,000. The trustee also financially benefits -- $18,250 in incentive commission for the $300,000 sale price of the house. Both realtor and trustee earn more than the federal homestead exemption provided to debtors. In addition, our example means that creditors are denied $36,250 in assets -- that amount automatically goes to the realtor and Chapter 7 bankruptcy trustee.

11USC Sec. 503 allows reasonable compensation for professional services rendered by attorneys and other professionals. This compensation is categorized as "Compensation requested by attorney or other professionals for trustee." This is best described as hourly fees charged.

When Chapter 7 trustees plan to administer asset cases, they file with the court an "Application for Appointment of Attorney by Trustee." The "Application" generally, but not always, includes the hourly rate that will be charged by the attorney. It is not unusual to find the trustee apply to hire him/herself and/or their law firm. In addition, some attorneys on the panel of Chapter 7 trustees provide a fee range in their application for employment instead of one hourly rate. Therefore, trustees that are appointed as attorneys have freedom to adjust their hourly rate according to their financial needs.

The Application for Appointment of Attorney for Trustee might require some explaining for those unfamiliar with Chapter 7 bankruptcy procedures.

Although the majority, if not all Chapter 7 trustees are licensed attorneys, their duties as trustee are not in the category of practicing law and in fact, bankruptcy trustees cannot practice law as trustees.

We do not see licensed physicians working part-time as medical clerks. We do not see licensed cosmotologists working part-time as shampoo girls. We do not see chefs working part-time as wait staff.

Federal law does not require bankruptcy trustees to have license to practice law. When Chapter 7 trustees want to litigate a matter in the bankruptcy court, they must hire an attorney to represent them.

11USC Sec. 503 provides payment to professionals hired by bankruptcy trustees, even if and when the trustee wears two hats -- one as trustee of the bankruptcy estate, and another as attorney for him/herself.

In the Northern District of Illinois, Western Division, we most commonly see trustees hiring themselves to represent themselves as trustee. What makes the trustee hiring himself interesting, is the verbiage in Applications for Appointment. The trustee states that the trustee needs an attorney to "advise" him. The trustee is hiring himself, to advise himself. If not for the fact that they have a license to practice law, it can be effectively stated that the trustees are proceeding pro se.

This type of arrangement gives the trustee, who is also attorney for trustee/himself, the lawful right to "double-dip" from assets. He/she is paid once through incentive commission, and again for hourly attorney fees and expenses.

Some trustees find it more beneficial to hire other attorneys to do the legal and legwork, while they sit back and benefit from the incentive commission. A good example of this is in case number 97-50687filed in the Northern District of Illinois. The case continued for four years. The Chapter 7 trustee received $12,147.15 as incentive commission, and spent an average of 9.7 hours a year in the case, which earned him an additional $6,778.50 in legal fees as attorney for himself. His team of legal professionals also hired to represent him earned more than $67,000 in compensation. If the trustee had done nothing more than applied to hire his team of professionals, he would still qualify for and receive $12,147.15 in commission.

If you are told that Chapter 7 trustees have no personal reason for demanding property and cash, please educate the ignorant. Remember 11USC Sections 326 and 503. These sections of federal bankruptcy law motivate some Chapter 7 trustees to administer cases with criminal intent, extorting and stealing property and money that they have no lawful right to receive. It also gives them color and claim of official right to embezzle by converting all assets to their compensation.

Whether you are a debtor or person that is interested in justice, you can help by writing your U.S. Representative and U.S. Senator. Ask them to eliminate 11USC Sec. 326 that provides commission-compensation to Chapter 7 trustees. In addition, ask that they establish one hourly rate of compensation to attorneys representing the trustee. In other words, it will do no good to eliminate 11USC Sec. 326, but allow trustees/attorneys to raise their hourly rates to compensate for the loss in commission.