Bankruptcy costs and Surplus income payments
Surplus income payments may be required during a bankruptcy filing if you have the ability to repay a portion of your debts. This is structured on a “the more you make, the more you pay” basis.
How surplus income payment amounts are calculated
To allow Canadians to maintain a reasonable standard of living during the bankruptcy process, the government has set net monthly income thresholds that allow Canadians to maintain a reasonable standard of living during the bankruptcy process. The surplus income thresholds that are set by the Superintendent of Bankruptcy are derived from the low income cutoffs (LICO), released by Statistics Canada.
2013 surplus income standards:
Every dollar that you make above this threshold is subject to a surplus income payment of 50 percent. The surplus income calculation is:
Net income – Threshold = Surplus x 50% = Payment
Surplus income calculation example: Mary is single and lives alone. Her net income (take-home pay) is $2,800 per month. The income threshold for a single household family is $2,006. Her surplus income calculation would be:
$2,800 (Net income) - $2,006 (Threshold) = $794 (Surplus) x 50% = $397
Therefore, Mary's monthly surplus income payment would be $397.
Use our 2013 Surplus Income Worksheet to estimate what your payment would be.
During the bankruptcy period, you will be required to send your trustee a copy of your income and expense statements each month so the trustee can calculate your net income and determine if any surplus income payments are required.
Surplus income payments are required by law. The Bankruptcy & Insolvency Act sets out how to calculate the required payment, and your trustee is required to report to the court whether or not those payments have been made. If you are required to make surplus income payments, you will be in bankruptcy for 21 months. Therefore, if your surplus income payments are substantial, you may wish to consider alternatives to bankruptcy, including a proposal to creditors.
If you have irregular monthly income or experience a decrease or increase in income level, you can either make a lump sum payment or contact a trustee to help you determine your surplus income payment.
Surplus income adjustments
In the event that you have significant medical expenses, necessary expenses for employment, additional income tax payments, fines or other specified expenses, or you are also paying family support, your income will be reduced by these amounts, which reduces your surplus income total. Your BDO trustee will explain how the cost structure and surplus income works based on your situation.
What if a non-bankrupt spouse refuses to divulge his/her income to the trustee?
If your spouse works and is not going to file for bankruptcy, the trustee is obligated to base your monthly payments on family income - including that of the non-bankrupt spouse. The bankrupt has an obligation to disclose information regarding his/her spouse’s income if they are aware of it.
If the non-bankrupt spouse refuses to divulge his/her income to the trustee or bankrupt, the trustee will calculate the monthly payments excluding the non-bankruptcy spouse from the calculation, but only allowing a proportion of the applicable superintendent’s standards that corresponds to the number of persons in the family unit - including the spouse who would not divulge his/her income.
For example, with a family of three, the trustee may determine that 1/3 of the standard would be deducted from the bankrupt’s income, and 1/2 of that surplus amount would be required to be paid to the trustee.
Alternatively, you may not have to file for bankruptcy and pay surplus income. Your trustee in bankruptcy will discuss the possibility of filing a consumer proposal during your consultation when your financial situation is assessed.