Administrative fees & the bankruptcy trustee
Choosing Chapter 13 versus Chapter 7
David Siegel: Very rare. For the most part there is no interest on unsecured debt except for the administrative fee that the trustee charges, which is very reasonable. Four to five percent is not very much to pay.
Jesse Barrientes: Four to five percent on – ?
David Siegel: All dollars that go through the trustee's office for an administrative fee.
Jesse Barrientes: Actual monies that come through. So basically on your plan?
David Siegel: Exactly. Whatever the debtor pays in through the plan the trustee has to get paid an administrative fee for the work that they do.
Jesse Barrientes: So if $10,000 comes through the plan then they get paid – ?
David Siegel: Approximately $40 to $50 out of the $10,000.
Jesse Barrientes: So that seems, you know, really reasonable in terms of getting that done.
David Siegel: Very reasonable. And what they're doing is a lot of work. They're taking care of all of the administration of the debts. They're reviewing the proof of claims. They're paying out pursuant to those and they're doing this over a three- to five-year period. So it really is significant and it's a great form of relief, Jesse, for people who have the ability to repay but want to stop the high-interest on the credit cards and want to stop the collection efforts. Chapter 13 affords an individual an opportunity to do that payback over time with very little or no interest, and sometimes even payback less than the full amount owed.
Jesse Barrientes: Well, Dave, so we could explain it to our Aurora viewers. For example, of having just this one huge pot right here. This is where all your bills go in both secured and unsecured. Secured being the mortgage, being the car. Unsecured being the credit card bills, medical bills. Things of that nature. And so everything gets put in this pot.
David Siegel: That's right.
Jesse Barrientes: And then the bankruptcy trustee is responsible for these things in this pot. And as your money comes in to pay – to fund the plan, whatever that amount is then out of this pot the trustee makes the payment to this creditor or that creditor and this creditor and this person throughout the entire duration of the plan. So it could be several creditors. It could be 15 or 20 creditors coming off from just this one particular individual plan.
David Siegel: Right. And the trustee follows a certain code section called the hierarchy of claims. So, in other words, domestic support obligations, maintenance and child support would be paid first. Secured creditors, mortgage arrears, autos, property taxes, those would be paid back second. And your unsecured debt, credit cards, medical bills, personal loans, past due utility bills, those creditors are paid last.
So really the most important creditors, family obligations, and then creditors secured by property get paid first. Credit cards, medical bills, personal loans, utilities, they get paid at the very tail end and often less than 100 percent.
Jesse Barrientes: Do they ever on the unsecured go under 10 percent?
David Siegel: Yes. You can get a case approved where the amount paid back is less than 10 percent. It really depends but typically not – you figure you're gonna pay 10 percent at least or more depending on your ability to pay and what type of assets you have. So anywhere between 10 and 100 percent is what you're gonna have to pay back through a Chapter 13 bankruptcy in Aurora over time.
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See Also:
Chapter 7
Misconceptions about Chapter 7
Life after Chapter 7 bankruptcy
Privacy is protected in bankruptcy
Household income qualifications
Converting Chapter 13 to Chapter 7
Converting Chapter 7 to Chapter 13
Chapter 13
Using Chapter 13 to save a home
Choosing Chapter 13 versus Chapter 7
Debt consolidation & late fees
Administrative fees & the bankruptcy trustee
Chapter 13 payment plan dismissal
