Distributions and Expenses in Chapter 13

The emphasis in the proposed bankruptcy legislation on increasing the use of chapter 13 naturally opens
the question about how the chapter currently works to distribute estate funds to creditors—general unsecured
creditors in particular. One recent study, based on information from a single judicial district, concluded that
"debtors pay precious little general unsecured debt in chapter 13."<small>^{<a href="#2" name="2a">2</a>}</small> Here we report on the distributions to
creditor classes, and several forms of administrative expenses, from chapter 13 cases reported by the chapter
13 standing trustees during Fiscal Year 1998.

</p><p>During FY98, chapter 13 trustees collected approximately $3 billion from approximately 1 million
estates—an average of $3,000 per estate.<small>^{<a href="#3" name="3a">3</a>}</small> How were these proceeds distributed?

</p><p>To begin, we consider two major categories of distribution: disbursements to creditors of all kinds, and
the expenses of the chapter 13 trustee.<small>^{<a href="#4" name="4a">4</a>}</small> As shown in Figure 1, for the nation as a whole, about $2,817 of
the average $3000 per case was distributed by the trustee while $183 was used to fund the trustee's
operation (93.9 and 6.1 percent, respectively). The range of distributions to creditors across 173 trustees
ranged from 88.3 to 98.4 percent.<small>^{<a href="#5" name="5a">5</a>}</small>

</p><p></p><center><img src="/AM/images/journal/figure1may00.gif"></center>

<p>The distributions comprised five categories of recipient: secured, priority unsecured and general
unsecured creditors, debtors' attorneys payments scheduled within the plan, and current mortgage and child
support payments made within the plan but without a trustee fee attached.<small>^{<a href="#6" name="6a">6</a>}</small>

</p><p>Figure 2 presents a percentage breakdown of distributions into these categories for the nation as a whole.
Secured creditors received 57 percent of the total distribution, general unsecureds 19 percent, priority
creditors 11 percent, debtors' attorneys 8 percent and non-fee payees 5 percent.

</p><p></p><center><img src="/AM/images/journal/figure2may00.gif"></center>

<p>Here, as practically everywhere on the chapter 13 landscape, these distributions are subject to large
geographical differences, whether these are aggregated at the level of U.S. Trustee region, judicial district
or state. To take but one example, the percentage of fee-liable creditor distributions going to general
unsecureds ranged from 8 percent in Connecticut to 49 percent in South Dakota. For all the states, the
average (whether mean or median)<small>^{<a href="#7" name="7a">7</a>}</small> was 25 percent.

</p><h3>The Question of Lawyers' Fees</h3>

<p>Figure 2 shows that on average, debtors' attorneys received about $240 through the chapter 13 plan. The
annual reports of the standing trustees to the U.S. Trustees do not contain information about the debtors'
attorneys' total compensation for their cases; thus, we cannot determine from these reports how much of
the attorney's fee is, on average, collected before filing and how much is collected thereafter. This
information must be gained from the disclosure statements filed with the petition and the terms of the plan.
Moreover, even this information is incomplete for those cases that do not complete successfully because
the official case file will not reveal whether non-scheduled attorneys' fees due after filing were in fact paid
after dismissal.

</p><p>Therefore, without a different sort of labor-intensive data collection, we cannot estimate total lawyer's
fees for chapter 13. Our impression at present, based on a review of a limited set of case files, is that it
ranges from $500-$1500 per case, often with specific provisions for an hourly rate to be paid for additional
services covering contested matters or adversary proceedings.

</p><h3>Conclusions</h3>

<p>The operating expenses of chapter 13 trustees, taking into account the nation as a whole, are a small
proportion of the payments made into chapter 13 plans. The percentage of creditor distributions available
for general unsecured creditors is about 19 percent of all distributions, but there are large geographic
variations along that dimension. Notice, for example, that the payout to unsecured creditors is 19 percent
of distributions, but when the percentage payouts are calculated separately for each state then averaged
across the states, the average payout to unsecured creditors is 25 percent. Estimated payouts to unsecureds
fluctuate within this range when national averages are taken across other natural units within the bankruptcy
system, <i>i.e.,</i> standing trustee, U.S. Trustee region and judicial district. Such differences are inevitable
consequences of demographic variability and the nature of averaging. The variability can be confusing if
published reports do not specify the details of their calculations carefully. Expressed as percentages, the
difference between 25 and 19 percent might not seem very large. In dollar terms, however, it amounts to
more than $180 million. Given the tendency of numbers in this area to become part of the political rhetoric,
it is important that we understand the calculations from which the numbers derive.

</p><hr>
<h3>Footnotes</h3>

<p>^{<small><a name="1">1</a></small>} The opinions expressed here are those of the authors and do not necessarily reflect the positions of the U.S. Trustees or the Department of Justice. <a href="#1a">Return to article</a>

</p><p>^{<small><a name="2">2</a></small>} Norberg, Scott F., "Consumer Bankruptcy's New Clothes: An Empirical Study of Discharge and Debt Collection in Chapter 13," 7 <i>ABI Law Review,</i> 415, 461 (1999). <a href="#2a">Return to article</a>

</p><p>^{<small><a name="3">3</a></small>} These numbers do not include information from Alabama and North Carolina, which are not served by the U.S. Trustee Program. <a href="#3a">Return to article</a>

</p><p>^{<small><a name="4">4</a></small>} Keep in mind that this includes all estates that were open for any period of time during the year. <a href="#4a">Return to article</a>

</p><p>^{<small><a name="5">5</a></small>} Excluded from this calculation were the accounts of several assistant U.S. Trustees who acted as chapter 13 trustees for part of the fiscal year. <a href="#5a">Return to article</a>

</p><p>^{<small><a name="6">6</a></small>} Distributions within this fifth category are relatively unusual. In FY98, fewer than 20 percent of the trustees distributed funds in this fashion. The practice tends to be geographically concentrated. We will
deal with local variation in this and other practices in future articles. See below for one example of significant variation. <a href="#6a">Return to article</a>

</p><p>^{<small><a name="7">7</a></small>} The equality of mean and median is a good sign that the spread of values of this statistic is symmetrical about its midpoint. <a href="#7a">Return to article</a>