Updated: March 2, 2022
When individuals file for personal bankruptcy the Trustee will calculate whether or not they will be required to make surplus income payments based on the 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. These thresholds are increased annually. 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 – $2,248 (threshold for single person) = $236 ÷ 2 = $118
In this example, John Doe is required to pay $118 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 term is automatically 21 months. A second bankruptcy is automatically 36 months.
If this was John’s first bankruptcy he would be required to pay $118 for a period of 21 months. If John had been bankrupt before then he would have to make 36 payments of $118.
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.
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