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Surplus Income

The Short Version

Bankruptcy is geared to income just like some rent is geared to income; the more you earn, the more you pay.  You report your income on a monthly basis during your bankruptcy and your payments will be based on your actual average earnings.  Unusual bonuses or irregular income will be averaged.

The Longer Version

The government decides how much it costs for a family of 1 to 7 people to live on a monthly basis each year. When a bankrupt earns $200 more than the amount allowed by the government two things happen.

  1. The bankrupt’s discharge date is extended by 12 months. That means that a first time bankrupt with surplus income will be eligible for discharge after 21 months while a second time bankrupt with surplus income will be eligible for discharge after 36 months.
  2. Half of the amount above the government limit is paid by the bankrupt to the Trustee. The Trustee than uses those funds for the general benefit of the bankrupt’s creditors.

The calculation for surplus income is based on the Office of the Superintendent of Bankruptcy Canada’s Directive No. 11R2. It’s a complex calculation that determines how much money you earn above the government’s limit and in turn how much you need to pay to your Trustee. It’s complicated because the government tries to account for everyone’s personal situation in determining a fair and affordable amount to be paid to the Trustee.

Example

First, list the income of each member in your family. We’ve used some example figures below.

You Spouse Dependent 1 Dependent 2 Total Family
Employment Income $3,000 $1,600 $200 $0 $4,800
Child Tax Benefits $ $ $ $ $
Trillium $ $ $ $ $
HST Benefits $ $ $ $ $
E.I. Benefits $ $ $ $ $
O.D.S.B. Benefits $ $ $ $ $
C.P.P. Benefits $ $ $ $ $
O.A.S. Benefits $ $ $ $ $
Other Income $ $ $ $ $
Other Income $ $ $ $ $
TOTAL INCOME $3,000 $1,600 $200 $0 $4,800

 

Second, list all of your non-discretionary expenses which are listed below.

You Spouse Dependent 1 Dependent 2 Total Family
Child Support Paid $ $ $ $ $
Spousal Support Pd $ $ $ $ $
Child Care Expenses $400 $ $ $ $400
Medical Expenses $ $200 $ $ $200
Court Fines Pd $ $ $ $ $
$ $ $ $ $
TOTAL EXPENSES $400 $200 $ $ $600

 

Next, deduct your income from your expenses, and calculate your share of your family’s net income.

You Spouse Dependent 1 Dependent 2 Total Family
TOTAL INCOME $3,000 $1,600 $200 $0 $4,800
TOTAL EXPENSES $400 $200 $0 $0 $600
NET INCOME $2,600 $1,400 $200 $0 $4,200
% OF FAMILY 62% 33% 5% 0% 100%

 

Next, determine how much net income the government allows you to earn based on the size of your family.

Family Size 2015 Government Limit
1 $2,062
2 $2,567
3 $3,156
4 $3,831
5 $4,345
6 $4,901
7+ $5,456

 

Lastly, determine how much surplus income your family has.

Total Family
NET INCOME (A) $4,200
GOVERNMENT LIMIT (B) $3,831
SURPLUS INCOME (A – B) = (C) $369
YOUR % OF FAMILY INCOME (D) 62%
YOUR SURPLUS INCOME (C X D) = (E) $229
SUPRLUS INCOME PAYABLE (E X 50%) $114

 

The calculation differs based on certain unusual circumstances and your Trustee should be consulted with any questions concerning Surplus Income.

Reporting

All bankrupts are required to report their surplus income on a monthly basis by completing a monthly income and expense form and providing supporting documentation such as pay stubs or receipts for medical expenses. A bankrupt’s surplus income will be averaged to determine if surplus is in fact payable or not. A single month with 3 pays or an additional source of income doesn’t necessarily mean that surplus will need to be paid.

Consumer Proposals

Surplus income is not payable by debtors who filed a consumer proposal.  As such, debtors who file a consumer proposal are not required to report their income to their Trustee.

Questions

If you have any questions about surplus income, your personal financial situation, or how you can be debt free then give us a call or fill out the form below and let us impress you with our prompt response.

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