Surplus Income in Bankruptcy

Surplus Income in Bankruptcy

Where income is above government thresholds, surplus income limits require additional payments into the bankruptcy.

What is Surplus Income?

Surplus income is a term used when a person files for bankruptcy, indicating a limit set by the government on the amount that can be earned beyond basic needs.

If income exceeds this threshold, the individual is required to make additional payments over the course of the bankruptcy. This framework ensures that those who earn more contribute back to their creditors, reflecting the principle that higher earners should help repay their debts more substantially.

What is Surplus Income

Determining Surplus Income

The government sets rules for bankrupts for:

  • terms and conditions to bankruptcy
  • how much a bankrupt should pay into the bankruptcy, and
  • how long the bankruptcy should last

The government sets a level of income that they believe is reasonable given a families size, (e.g. family of 3). Where you earn more than the threshold, bankrupts must pay fifty (50) percent of the excess into the bankruptcy.

In other words, where you earn more than the bankruptcy threshold, you must give a portion to the trustee for your creditors.

Surplus Income – Examples

In bankruptcy, all other payments end, but surplus income payments may apply, for example:

  • Ian is in bankruptcy
  • he has 3 people in his family and is the only source of income
  • his income threshold is $3,604
  • he earned 3,900 in the month, net of taxes
  • $3,900 minus $3,604 = $296
  • 50% of $296 = $148 is payable

Ian will have to pay fifty (50) percent of the $296 as surplus income. The amount that Ian would have to pay would be one half of $296 which is $148.

Surplus Payment Determination

Surplus income under the Bankruptcy and Insolvency Act of Canada (BIA) is based upon the individual and their family size.  The amount of the payment is calculated by:

  • the family income
  • number of dependants
  • any deductible eligible expenses

Each month the bankrupt is required to submit proof of the income to the trustee.  Where your income has dropped due to layoffs, sickness or otherwise, payments are reduced.   Where you earn more the payment increases.

Initially I was surprised at the cost for bankruptcy, but when it was explained that I would only have this one monthly payment for 9 months I realized that I would be getting my life back, no calls, no garnishee and I could sleep.  Very happy we dealt with YanchDey and I highly recommend their services.  B. Powers Toronto.

Bankruptcy Extensions – Surplus Payments

Where the surplus income is greater than $200 per month, the government will extend the bankruptcy for an additional 12 months.

Where your considering bankruptcy, we’ll review the costs and any surplus income calculations.  Where surplus payments are high, we may consider looking at a consumer proposal.

Bankruptcy Costs & Surplus Payments

The payments in bankruptcy are dependant upon:

  • average monthly income
  • value of any non-exempt assets
  • number of people in your family
  • types of expenses, like child care or child support
  • is this your first or second bankruptcy

The government sets a limit on what a bankrupt is allowed to earn.  After reaching that limit, the government requires the bankrupt to pay more into the bankruptcy.

Speak to an Insolvency Trustee

Bankruptcy Trustee Kelly Dey
Kelly Dey Insolvency Trustee

Questions about insolvency and bankruptcy? I invite you to call our office to speak to myself or one of our insolvency trustees.

We’re happy to speak over the phone or in-person at one of our offices.

Where you have questions or need some advice, please feel free to give us a call without cost or obligation.

Call us today at 905-721-7506.

Once I was laid of work the bills couldn’t be paid, my wife and I fell further into debt.  A friend referred me to YanchDey who really helped.  The bankruptcy has passed, I’m back to work and stress free, thanks again, and highly recommend these trustees.  Vecus Bennett, Ajax

Call 905-721-7506