What is Surplus Income and How Will it Affect My Bankruptcy?

5 August 2014

What is Surplus Income and How Will it Affect My Bankruptcy?

When an individual files for personal bankruptcy the trustee will calculate whether or not he will be required to make surplus income payments based on his net household income.

The Government of Canada has set net monthly income thresholds for a person or family to maintain a minimal standard of living in Canada.  Every dollar that a bankrupt family makes above this level is subject to a surplus income payment of 50% while a person remains bankrupt.

Under the surplus income rules, the monthly surplus income payment is calculated using the following formula:

Net Income  –  government-established threshold  =  surplus  ÷  2  =  surplus income payment

For example:  John Doe lives alone and his take-home pay is $2,484 per month.  Using the above formula, the monthly surplus income payment that he is required to make would be:

$2,484  –  $2,014 (threshold for single person)  =  $470  ÷  2  =  $235

In this example John Doe is required to pay $239 in surplus income payments each month that he is bankrupt.  Each month he will submit his income and expenses to his bankruptcy trustee and they will calculate his surplus income payment.  If John’s pay increases, he will pay more and if his pay decreases, he will pay less.

If surplus income each month is greater than $200 (meaning that you are paying more than $100 each month in surplus income payments), a first-time bankruptcy is automatically extended to 21 months.  A second bankruptcy is extended to 36 months.

If this was John’s first bankruptcy he would be required to pay $235 for a period of 21 months.  If John had been bankrupt before then he would have to make 36 payments of $235.

When it comes to bankruptcy it’s not one size fits all so it’s important that you have all of the information necessary to make the best possible decision.

For a free consultation over the phone or in person in Saint John, Moncton, Fredericton or Charlottetown, please contact us.  Powell Associates Ltd. is a licensed insolvency trustee focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses.