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 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 a guideline for what a family is allowed to earn. The larger your family, the more you are allowed to earn. The thresholds are increased each year.

As an example, a single person in 2013 is allowed to have take-home pay each month (income after taxes) of $2,006.00 (Contact a licensed trustee to find out the current limits for your family size).). If a person earns $2,206.00 in a month, they are $200.00 over the limit, so the would be required to contribute $100 to their bankruptcy estate as a surplus income obligation.

Each month during the bankruptcy process the bankrupt submits copies of their pay stubs and any other proof of income to the trustee and the trustee calculates their average income during the first six months of the bankruptcy period. (18 months for second time bankrupts) If your average surplus income obligation is less than $100.00 per month, then you will be eligible for an automatic discharge in either nine or 24 months depending on whether you have filed a previous bankruptcy.

If your surplus income obligation is more than $100 on average, you would be required to pay surplus income for a 21 month period. For second time bankrupts, this period is extended to 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.