(Video) Trustee Preferences: The Chapter 7 Clawback

Posted by Wesley Scott on September 18, 2018 at 2:40 PM
Wesley Scott

You file a Chapter 7 Bankruptcy right? You know going into it that you made a preferential payment of 7k to your dad, no surprise there. Your local bankruptcy lawyer has prepped your case well. But, it dawns on you, what happens to the money the Chapter 7 trustee claws back from your dad? Where does the 7k go to?

This is an excellent question and one that does get asked frequently (that is when you have made a preferential payment and it will get clawed back by a Chapter 7 trustee.). Chapter 7 trustees earn fees if they collect preferential payments, nonexempt assets, or proceeds from fraudulent transfers. These fees are above and beyond Chapter 7 trustee fees that they collect per case, which is often quite nominal.

The only way trustees make any decent money is they either liquidate nonexempt assets or claw back preferences or fraudulent transfers. This all said in an effort to have you understand A) why Chapter 7 trustees can be aggressive and B) that they earn about 25% of what they collect up to a certain dollar amount. So, whereas a Chapter 7 trustee might earn $60-$70 a case if there is nothing going on they could collect $1,810.00 if they claw back a preference. Make sense?

The balance of the money clawed back, after Chapter 7 expenses, would go to unsecured creditors based on the list of priorities outline in Section 507 of the Bankruptcy Code. You might wonder if there are sort of minimum amounts that a Chapter 7 trustee might administer. Years ago, I had a Chapter 7 trustee tell me east coast trustees would not administer anything less than 10k. We have Minnesota trustees that will administer as little as 1k. It is ridiculous.


When the time is right, or when you are ready, reach out to Minnesota’s nicest bankruptcy law firm at www.kainscott.com. You will be so happy you did!

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Topics: Chapter 7 Bankruptcy, Filing Bankruptcy, MN Bankruptcy

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