Surplus income is one of the costs of filing for bankruptcy. The government sets a threshold for bankrupts and over that threshold sets additional payments required.
What is Surplus Income?
When a person files for bankruptcy, the government sets a limit of the amount that can be earned, called surplus income.
Where you go over the threshold the bankrupt is required to make additional payments into the bankruptcy.
The concept is that people who earn more can pay something back to their creditors.
The government sets rules for bankrupts for:
- how much you will have to pay in a bankruptcy, and
- how long you have to pay
The government sets a level of income that they believe is reasonable given your family unit, (e.g. family of 3). Where you earn more than the threshold, as a bankrupt you must pay fifty (50) percent of the excess to the government as surplus income.
In other words, where you earn more than the bankruptcy threshold, you must give a portion to the trustee for your creditors.
| Size of Family | Income Threshold |
|---|---|
| 1 | $2,203 |
| 2 | $2,743 |
| 3 | 3,372 |
| 4 | 4,094 |
| 5 | 4,644 |
| 6 | 5,5237 |
Length of Bankruptcy
Your amount of income also affects the length of time you are held in bankruptcy.
Where your surplus income is greater than two hundred dollars, (e.g. you therefore make an additional payment of $100/month) the term of the bankruptcy will be extended to twelve (12) months, including the extra payments.
Where this is the second bankruptcy the bankruptcy is extended to thirty-six (36) months.
As your income affects the amount and length of bankruptcy we want to have a conversation with you and discuss your options.
Many times people speak with us and learn that there are alternatives to bankruptcy. Such as a consumer proposal which reduces debt, saves money and avoids filing for bankruptcy.
How is Surplus Income Calculated
Surplus income is defined in the Bankruptcy and Insolvency Act of Canada (BIA) and 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 the income may have dropped due to layoffs, sickness or otherwise any surplus payments are dropped or reduced. Where you earn more the amount payable will be increased.
- The surplus income is calculated as your (income) minus (threshold) = (surplus) times (50%) = (Payment)
For example:
- Ian is in bankruptcy
- he has 3 people in his family and he is the only source of income
- his income threshold is $3,372
- he earned 3,900 in the month, net of taxes
- $3,900 minus $3,372 = $528
- $528 is total surplus income for his family threshold
Ian will have to pay fifty (50) percent of the $528 surplus
The amount that Ian would have to pay would be one half of $528 which is $264.
Avoiding Bankruptcy
When people come to us we want to have a discussion with you about your debts.
Many times people feel that filing for bankruptcy is their only option, but that’s not true and there are alternatives that may fit your situation.
Where people have a good steady job with a high income an alternative maybe a consumer proposal.
Consumer proposals allow you to avoid filing for bankruptcy, keep your possessions and dramatically reduce your debt.
Get out of debt today and make that call to get started, find out more about how you can rebuild your financial life, contact us at 905‑721‑7506
