Fourth Circuit Rules on Question of Trustee Commissions

April 28, 2014 – This week, the Fourth Circuit Court of Appeals became the first circuit court in the nation to provide clarity and guidance to lower courts regarding the commission-based fees due to a Chapter 7 bankruptcy trustee under the Bankruptcy Code.  See In re Rowe,  No. 13-1270 (4th Cir., Apr. 28, 2014).  Lower courts have struggled with this issue for many years.  Some courts viewed the commission rates set out in Section 326(a) of the Bankruptcy Code as “presumptive” commission rates which should be awarded under normal circumstances.  Other courts regarded those rates as statutory maximum rates, with no presumption that a trustee was entitled to receive the statutory maximum commission in ordinary circumstances.  In jurisdictions that did not afford any presumption in favor of the commission rates set forth in Section 326(a) of the Code, a trustee often had to prove why he or she should be entitled to receive the maximum statutory commission.  However, the Fourth Circuit now has made it clear that a trustee is presumptively entitled to the statutory maximum commission, and a court cannot award less than the maximum commission-based fee to a Chapter 7 trustee without engaging in a detailed, case-by-case analysis of why “extraordinary circumstances” exist to reduce those commissions.    

The full opinion is available online: