What Is Surplus Income If I Go Bankrupt?

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What Is Surplus Income If I Go Bankrupt?

The requirement to pay “surplus income” during your bankruptcy:

If you have filed (or are thinking about filing) an assignment in bankruptcy it is important that you understand something called “surplus income”.

Briefly, the government has established a list of income levels for households of different sizes. If the household’s income exceeds the level set by the government then additional payments must be made to your trustee during your bankruptcy.

The government’s instructions regarding surplus income can be found in Directive 11R2 from the Office of the Superintendent of Bankruptcy.

To explain surplus income calculation, let’s work through a couple of examples.

John lives alone and earns $18/hour for a 40 hour work week. He gets paid bi-weekly (every two weeks). His take-home is $1,050.

John’s surplus income calculation looks like this:

Total household income: 2 x $1,050 =
$ 2,100
Less the government threshold
- 1,870
Income over the threshold
230
Surplus income rate (50%)
x 0.5
Surplus income to pay
$115.00

 

John would be required to pay an additional $115 to his trustee this month. At least twice a year John will receive 3 paycheques (instead of his normal 2). In those months his surplus income calculation looks like this:

Total household income: 3 x $1,050 =
$ 3,150
Less the government threshold
- 1,870
Income over the threshold
1,280
Surplus income rate (50% of $1,000)
500
Surplus income rate (75% over $1,000)
210
Surplus income to pay
$ 710

 

Every month that a person remains bankrupt they are required to submit a statement of income and expense to their trustee. This is really just a list of all of the different types of income that came into the household (paycheques, support payments, child tax benefits, rent from tenants – all money coming in, no matter the source) and how that money was spent. The trustee will use this report to determine if any surplus income is owed by the bankrupt.

In cases like the example above, the surplus income calculation is fairly straightforward. It can become more complicated if there are many people in the household with varying amounts of income. Below we have created a number of different examples for you to review in the hope that one will be similar to your own situation.

One person in the household paying support for children

Two people in the household, only one has filed bankruptcy

Two people in the household and both have filed bankruptcy separately

Two people in the household and they have filed bankruptcy jointly

Two people in the household, only one has filed bankruptcy and they have a payroll deduction for RRSPs

Four people in the household, only one has filed bankruptcy

Four people in the household, only one has filed for bankruptcy and they are paying support for children

One person in the household that is self-employed

There is one more thing about surplus income that you need to know: effective September 18, 2009, if you have surplus income of more than $200 per month, meaning you are making a surplus income payment of more than $100 per month, your bankruptcy will be automatically extended for another year.

If you are a first time bankrupt with surplus income of $200 or more, your bankruptcy will last for 21 months. If you are a second time bankrupt with surplus income, the length of your bankruptcy will be 36 months.

It is very important that you understand how surplus income and surplus income calculation work and what your duties and responsibilities in this regard are during your bankruptcy. We strongly suggest you read the government’s brochure and discuss with your trustee how they will be handling surplus income during your bankruptcy.