3 Things to Know About Surplus Income in Bankruptcy

Understanding Surplus Income in Bankruptcy: A Comprehensive Guide

The concept of Surplus Income in Bankruptcy is a vital, yet often misunderstood aspect of the bankruptcy process. In this guide, we will break down the complexities of surplus income, its implications in bankruptcy, and the rights you hold in this context.


Surplus Income in Bankruptcy

Definition of Surplus Income

Surplus Income is a term coined by government authorities to describe a specific calculation that bankruptcy trustees must perform when a person files for personal bankruptcy. This calculation determines the monthly payments that the bankrupt individual must make.

While this mathematical exercise follows a set of defined rules, it can prove perplexing for those not well-versed with it. However, there are ways to manipulate your surplus income payments during bankruptcy.

The Surplus Income Threshold

The most crucial figure in the surplus income calculation is the Surplus Income Threshold. This figure represents the government’s assessment of the amount a person requires to maintain a reasonable living standard in Canada. The threshold figures are updated every spring and apply to anyone who has filed for bankruptcy.

The schedule includes an income figure for households ranging from one to seven or more members. Naturally, the larger the household, the higher the threshold.

Surplus Income Calculation

The surplus income calculation follows a comparative model. The total income of the household is compared with the surplus income threshold for a household of that size after allowable deductions. If the total income minus the deductions exceeds the threshold by $200 or more, the bankrupt individual might have to make surplus income payments.

To gauge the bankrupt’s share of the total household income, the surplus income is adjusted proportionately. If this share surpasses $200, the bankrupt individual is obligated to make surplus income payments, amounting to 50% of their share of the surplus.

This calculation might seem complex initially. However, it is essential to understand the process as it influences your potential payments if you file for bankruptcy and the duration of your bankruptcy.

Mediation Process

If you disagree with your trustee’s surplus income calculation, you have the right to request mediation from the Office of the Superintendent of Bankruptcy. The mediator is not there to enforce an agreement but to facilitate a discussion to ideally reach an acceptable surplus income amount.

The mediator’s role is confidential, with no record of the mediation, only a signed agreement, or a declaration of no agreement. In the latter case, the issue is taken to court for resolution.

Mediation is an underutilized tool primarily because trustees often fail to explain the process to those filing for bankruptcy. However, for those with unusual living expenses that do not fit the government’s guidelines for allowable deductions, mediation can be instrumental.

Seeking Extended Payment Time

An essential aspect of surplus income is the ability to request extensions for payment. Bankruptcy law assumes monthly surplus income payments. However, if you are unable to comply, you can negotiate with your trustee for more time to pay.

The most common practice is to request an additional 12 or 24 months to complete the required payments. Although your payment arrangements will be referred to a mediator, this is merely to record the agreement and make it binding on both parties. You will remain in bankruptcy until your total surplus income obligation is paid off, but once an agreement is settled, your obligation remains unaltered.

To sum up, understanding surplus income calculation, knowing your rights to dispute your trustee’s calculation and request mediation, and realizing your right to ask for more time to make the required surplus income payments are crucial aspects of dealing with Surplus Income in Bankruptcy.

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