3 Things to Know about Surplus Income in Bankruptcy
What You Need to Know About Bankruptcy’s Surplus Income Requirement
Surplus income is a requirment in bankruptcy that certain individuals are required to make.
The government has given this name of surplus income to the monthly bankruptcy payment calculations that trustees must make when someone files personal bankruptcy.
Using a specific set of rules, your trustee will examine your income and expenses to determine if your income is over the threshold of income for family units of your size.
While it is not complicated, if you are unfamiliar with the process and calculation it can be confusing.
The most important number in the calculation is what is known as the “Surplus Income Threshold.”
The Surplus income threshold is the amount of money a person needs to maintain a reasonable standard of living.
The government updates this number every year in the spring for households of 1 to 7 people and must be applied to anyone that has filed bankruptcy.
For larger households, the surpus income threshold is higher.
Anyone who has income over the threshold will have “surplus income” which means they will be required to pay 50% of the income over the threshold into their bankruptcy.
1) How Does it Work?
The surplus income calculation works by examining the amount of money you have coming into your household minus the dudections allowed by the government.
The trustee then compares this number to the surplus income threshold for a household of your size (the number of people living in your house).
Should the income minus your deductions be greater than $200 over the surplus income threshold you might be obligated to pay surplus income towards your bankruptcy estate.
Finally, the trustee will examine the portion of the household income that is the bankrupt’s share.
The final calculation will then be adjusted to show the bankrupt’s share of the surplus income.
If the share of the bankrupt’s surplus income is $200 or more, the bankrupt must pay 50% of the surplus income to the bankruptcy estate.
If you have surplus income, you will be bankrupt longer, and your bankruptcy will cost more.
Fortunately, your trustee will take the time to carefully explain how surplus income works for you.
2) What if I Can’t Pay My Surplus Income Each Month?
Usually a bankrupt will pay the surplus income each month as the bankruptcy law assumes you will be making payments each month.
However, you have the ability to request more time to make these payments.
You will be required to negotiate the surplus payments with your trustee.
Once you have made an arrangement with your trustee, the agreement will be sent to a mediation, who will record the deal so it becomes legally binding on you and your trustee.
You will not get your bankruptcy discharge until you have paid all of your required surplus income, but your payments won’t change once an agreement has been made.
3) Can I Request Mediation of My Surplus Income Requirements?
If you don’t feel the trustee has prepared a proper surplus income calculation you can request the Office of the Superintendent of Bankruptcy to perform Mediation.
The mediator will open talks between you and your trustee and hopefully help you reach an agreeable arrangement; the mediator doesn’t have the power to impose a surplus income payment upon you.
Should the mediator not be able to help you reach an agreement, the matter will be sent to the bankruptcy court.
Mediation is rare, but it is often used by people that have unusual expenses that don’t match the guidelines set by the government for allowable deductions.