What Is Surplus Income If I Go Bankrupt?

Reviewed by
A Licensed Insolvency Trustee
on March 4th, 2021 11:16 am

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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.

Surplus Income Calculation Using Government’s Thresholds for 2016

To explain surplus income calculation, let’s work through an example.

John lives alone and earns $18/hour for a 40 hour work week. He gets paid semi-month (twice a month). His take-home is $1,200 and doesn’t fluctuate.

John’s surplus income calculation looks like this:

Total household income: 2 x $1,200 =
$ 2,400
Less the government threshold
– 2,089
Income over the threshold
Surplus income rate (50%)
x 0.5
Surplus income to pay

John would be required to pay $155.50 to his trustee for a 21 month period totalling $3,265.50. At the end of the 21 months period, if there was no change to his income or family size during the bankruptcy, and he paid the required amount, (assuming there are no objections to his discharge) he would receive an automatic discharge from his bankruptcy.

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 as John’s income doesn’t change. It can become more complicated if there are many people in the household with varying amounts of income.

If John was paid bi-weekly (alternating weeks) then a few times a year he would receive an extra pay cheque. This would increase his surplus income obligation as it would increase the amount he is required to pay on average during the bankruptcy.

Jan Feb Mar Apr May Jun
$2,400 $3,600 $2,400 $2,400 $2,400 $3,600
(2,089) (2,089) (2,089) (2,089) (2,089) (2,089)
$311 $1,511 $311 $311 $311 $1,511
$155.50 $755.50 $155.50 $155.50 $155.50 $755.50

In this scenario, John’s average required payment is calculated by adding up his surplus obligation (required payment) for each month ($2,133) and dividing it by the total number of months (6 months). His average surplus income obligation (required payment) is therefore $355.50 per month for a 21 month period.

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 (Directive 11R2) and discuss with your trustee how they will be handling surplus income during your bankruptcy.

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