Surplus income in Bankruptcy

When you make an assignment into bankruptcy, you are required to make a surplus income payment, a contribution to your estate, each month based on your income.  Somewhat of a confusing term, as surplus income is based on your net take-home pay on a monthly basis and not based on what available funds you may have left after you pay your monthly bills.  The more you earn above the established limits, the more you are required to contribute.  Surplus income is accumulated in a trust account and dispersed amongst all your creditors at the end of the process. 

Here are the income limits set for 2012, based on your family size:

          Family Size          Limit

                1                 $1,980
                2                 $2,465
                3                 $3,031
                4                 $3,680
                5                 $4,174
                6                 $4,737
                7+               $5,241

 As an example, a single person in 2012 is allowed to have take-home pay each month (income after taxes) of $1,980. For every dollar their income exceeds this limit in a month, they are required to make a contribution of 50% of the amount they are over the limit to the trustee, in form of a surplus income payment.

If that person earned net-take home pay of $2,500 in a month, they are $520 over the limit, so they would be required to contribute $260 (which is referred to surplus income) to their bankruptcy estate for the current month.

Each month you would be required to submit proof of your net take-home pay to the trustee.  If you have proof of the following payments, you can deduct these amounts from your net take-home pay – spousal/child support payments, child care payments, medical bills, fines and employment expenses, as allowed by Canada Revenue.

The duration of your bankruptcy will be based on your surplus income requirements as follows:

  • A first time bankrupt with no surplus requirement is entitled to an automatic discharge in 9 months.  If you have $100 or more in surplus requirements, you will be bankruptcy for 21 months.
  • A second time bankrupt with no surplus requirement is entitled to an automatic discharge in 24 months.  If you have $100 or more in surplus requirements, you will be in bankruptcy for 36 months.
  • A third (or more) time  bankrupt would be required to go to bankruptcy court, and the bankruptcy court will decide how long you would be in bankruptcy (quite possibly for more than three years if you have excess earnings).
  • A bankrupt who has debt owing to Canada Revenue Agency in excess of $200,000 is not eligible for an automatic discharge.

If you require additional information, please contact us for a free consultation.  During the process, we would calculate your surplus income.  The most important thing to understand is what your limit is, so you can estimate the cost of your bankruptcy.  For further information, you can visit the website of Office of the Superintendent of Bankruptcy at www.osb.ic.gc.ca

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