Avoid Surplus Income By Filing for A Consumer Proposal
One of the main concepts that you need to have a good understanding of before you even think about filing for bankruptcy in Canada is your surplus income.
The idea of surplus income is the more money you bring in, the more you need to pay when you face bankruptcy.
The concept certainly makes sense.
If you’re a healthcare professional who brings in $200,000 a year and you file for bankruptcy because you happened to make some bad investments, then you would pay more to your bankruptcy when compared to someone who just brings in the minimum wage.
If you want to find out more then take a look below.
Key Concepts you Need to Be Aware Of
The government will set a limit on your income every month.
This is normally calculated after tax.
If you happen to earn more then you will be asked to pay 50% of whatever is over the limit.
For example, if the limit is $2,243 a month and you happen to be $500 over the threshold then this means that you would need to pay $250.
If your income is $200 over the limit then your bankruptcy will be extended for a year, and you will need to make the surplus payments every month, for an additional year.
All in all, the more money you bring in, the more you will pay.
If you want to find out more about the calculations or how they affect you, then take a look below.
How do the Rules Work Regarding Surplus Income?
The government will set a limit for what you’re actually allowed to earn every month.
This will be based on your household.
If you want to learn more about the limits, then take a look below.
Family Size & Limit:
A Quick Example:
If you want a quick example, then this is how the formula works:
Jill is single and she has absolutely no dependents.
She brings in an average of $400 a week.
In a standard month, she earns $1,600 after tax.
She can earn $2,243 because Jill is below the surplus limit.
Therefore, no payments need to be made to the trustee during the period of the bankruptcy.
If Jill earnt $2,244+ on the other hand, then she would need to make contributing payments.
What Happens if my Income Increases?
If you happen to be getting a raise or if you get some inheritance then it may be wise for you to file for a consumer proposal.
This is a very good alternative to bankruptcy because you won’t have to worry about the surplus.
Even if you are given just a single bonus, it’s what you earn during the duration of the bankruptcy that actually counts.
If you happen to be on an average of $200 over the income limits and this is over 2 months, then this will extend your timeline from a total of 9 months to 21 months.
So before you make the decision to go bankrupt, it is always helpful for you to ask your advisor to see if they can work out your surplus payments.
You need to tell them if you are anticipating any overtime bonuses or if you are going to be working overtime.
This will increase your monthly pay, so it’s vital that you keep this in mind.
You also need to tell them about your extra pay if you are paid weekly as well, as this will all increase your earnings.
If you do not end up doing the working out before you start, then you may be expecting a 9-month bankruptcy but you may actually end up with a two-year bankruptcy with more payments than you’d like to make.
Avoid the Trap
If you want to make sure that you do everything you can to avoid falling into a trap when it comes to your bankruptcy, then you need to look at your income.
You need to find out if you can avoid the surplus income calculator by filing for a consumer proposal instead.
The main reason why you need to do this is because with a consumer proposal, the payments are the same so if your income happens to increase, you know that your payments won’t be affected.
Whether a consumer proposal is the right solution will depend on a lot of different factors, such as how much you plan to earn during your bankruptcy, if you are hoping to get a promotion or if you are going to come into a large amount of money.
If you want to get the best result out of this then you need to sit down and take a good, long look at your finances.
If you do this then you will be able to work out everything you need to know, and you will also be able to work out how over you are in terms of the threshold.
If you need some help then it may be worth trying to contact a licensed solvency trustee.
When you do, they can then help you to know more about the situation you are in.
The Solution- Bankruptcy Canada
Here at Bankruptcy Canada, we know more than anyone else how important it is for you to get the best result out of your bankruptcy, and that is why we will put you in touch with a licensed trustee.
When we do, they can then negotiate a consumer proposal on your behalf.
If you want to find out more about your bankruptcy or if you want to find out if it is possible for you to avoid a consumer proposal, then the only thing that you need to do is contact us today.
You can contact us by phone or even by email if you want and when you do, we will do our best to reply to you in the shortest possible time.
We can’t wait to hear from you.