What is Surplus Income?

Under the Bankruptcy & Insolvency Act, the federal legislation that governs the bankruptcy process in Canada, you are required to make a surplus income payment, a contribution to your estate, each month based on your income.

The concept behind this rule is simple. The more you earn, the more you are required to contribute. It’s only fair that a high income earner, such as a doctor, who goes bankrupt (perhaps because of bad investments), should be required to pay more than someone who has less income.

Here’s how it works: The Office of the Superintendent of Bankruptcy sets limits for what a family is allowed to earn. The larger your family, the more you are allowed to keep. The thresholds are increased each year.

As an example, a single person in 2009 is allowed to have take-home pay each month (income after taxes) of $1,870. (Contact a licensed trustee to find out the current limits for your family size). For every dollar their income exceeds this limit in a month they are required to make a contribution of half of the amount they are over in form of a surplus income payment.

If that person earned $2,070 in a month, they are $200 over the limit, so they would be required to contribute an extra $100 to their bankruptcy estate for the current month.

Each month during the bankruptcy process the bankrupt submits copies of their pay stubs and proof of other income to the trustee, and the trustee calculates their surplus income, and the bankrupt contributes the required portion.

If your surplus income is less than $200 per month, and if this is your first bankruptcy, you are probably eligible to be discharged in nine months. However, if your surplus income is $200 per month or more, your bankruptcy will be automatically extended to 21 months, and you will be required to make your required surplus income payment for an additional year. (If this is your second bankruptcy and you have $200 or more of surplus income each month, you will be bankrupt for 36 months).

For a more detailed explanation on surplus income calculation, or for more information on how much surplus income you would be required to pay during bankruptcy process, please contact a trustee in bankruptcy.