Alexandria, Va. — Ariane Holtschlag of the Law Office of William J. Factor, Ltd. (Chicago) and a member of ABI’s Commission on Consumer Bankruptcy testified today before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law to provide Commission recommendations on trustee compensation. “In written comments and in statements made to the Commission and its committees, the need to raise trustee compensation appears to enjoy almost unanimous support,” Holtschlag testified. “Congress has not increased the $60 fee for a no-asset case since 1994.”

When a debtor files a chapter 7 case, the court appoints a bankruptcy trustee to oversee and administer the case. The chapter 7 trustee has many duties that come with this appointment, including ensuring that paperwork is accurate and selling property that the debtor is not entitled to keep for the benefit of creditors. The hearing was called to examine H.R. 3553, the “Bankruptcy Administration Improvement Act of 2017,” introduced last year by House Judiciary Subcommittee Chair Tom Marino (R-Pa.). The bill aims to increase the amount of compensation paid to chapter 7 bankruptcy trustees for services rendered.

While the Commission is working on a report of recommendations for improving the overall consumer bankruptcy system, to be published at ABI’s 2019 Annual Spring Meeting, it has completed its deliberations on the issue of chapter 7 trustee compensation. “Because of the importance of the topic to the operation of the bankruptcy system, we are releasing this statement at the invitation of the Subcommittee,” Holtschlag said.

Holtschlag testified that the Commission approved the following recommendations:

1) Compensation should be increased for trustees to $120, with the increase in the fee coming from bankruptcy filing and other court fees already paid to the general treasury; these bankruptcy filing and other court fees should be placed into a special fund earmarked for trustee compensation; and

2) The "breakpoints" for trustee compensation in asset cases should be adjusted to allow for more trustee compensation. Specifically, a 25 percent fee is currently applicable to the first $5,000 in distributions in a case. We recommend that this breakpoint be increased to $10,000. A 10 percent fee is currently in effect for distributions between $5,000 and $50,000. We recommend that this be changed to distributions between $10,000 and $100,000. finally, we recommend that the percent fee on distributions exceeding $1 million be increased from 3 to 4 percent. The 5 percent applicable on distributions between $100,000 and $1 million would not change.

“Even with a proposed $60 increase in the fees for no-asset cases, a more compressive approach to raising compensation for the trustees would be to change the existing fee ‘breakpoints’ on distributions in asset cases,” Holtschlag said. “Far more chapter 7 trustee compensation comes via asset cases than the per-case fee.”

She said that the Commission recommendations of increasing compensation in the asset cases would improve overall trustee compensation and offset the losses trustees will continue to suffer in the no-asset cases, even with a fee increase.

“Note that if the fee increase does not apply to cases pending at the time the increase was made, it would take a number of years before the trustees would see these amounts,” Holtschlag said. “Although the Commission did not specifically consider it, these new breakpoints would need to apply to pending cases to have the intended effect.”

To read the Holtschlag’s prepared testimony before House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law, please visit https://consumercommission.abi.org/.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abi.org. For additional conference information, visit http://www.abi.org/calendar-of-events.