Understanding Bankruptcy Income Limits in Canada
Bankruptcy is a legal process that provides relief to individuals struggling with unmanageable debt. In Canada, the Bankruptcy and Insolvency Act governs these proceedings, and it’s important for debtors to understand how their income influences the process. This article will provide an in-depth analysis of Bankruptcy Income Limits in Canada.
1. Eligibility for Bankruptcy
In Canada, there’s no specific minimum or maximum income threshold for filing bankruptcy. This means an individual making $10,000 per month could be just as eligible for bankruptcy as someone earning $2,000. The main qualifying factor for bankruptcy is insolvency which denotes that your debts are more than the assets you own.
2. Role of Income in Bankruptcy
Your income plays a crucial role in the bankruptcy process. It determines how much you will pay into the bankruptcy and how long the process will last. The amount you’ll contribute to the bankruptcy is based on your household income, household expenses, and the number of individuals residing in your household.
3. Bankruptcy Duration Factors
The length of your bankruptcy depends on several variables:
- Whether it’s your first or subsequent bankruptcy.
- If your income surpasses the legislated income guidelines.
- Fulfilment of all your bankruptcy duties.
4. Understanding Superintendent’s Standards
The Superintendent’s Standards or surplus income limits are set by the government and dictate any surplus income you’re required to pay. The table below provides a summary of the Superintendent’s Standards for 2023 (monthly), which determines how much you will pay into your bankruptcy based on the number of people in your household.
| No. of People in Household | Superintendent’s Standard |
|---|---|
| 1 | $2,543 |
| 2 | $3,392 |
| 3 | $4,167 |
| 4 | $5,050 |
| 5 | $5,728 |
| 6 | $6,456 |
| 7+ | $7,185 |
5. Bankruptcy Scenarios
Let’s examine two hypothetical bankruptcy scenarios to understand how these standards apply.
5.1 Scenario 1: First-time bankrupt with surplus income payments
A person earns a modest income and shares a household with their spouse. Their combined income exceeds the Superintendent’s Standard, hence, they must pay half of their total surplus income into their bankruptcy for the benefit of their creditors.
5.2 Scenario 2: Second time bankrupt without a surplus income requirement
This person earns slightly more than our previous example but lives alone and has a discretionary expense that reduces their total monthly income. Note that while they earn more than the surplus income threshold, anything less than $100 is not payable into the bankruptcy.
6. Changes in Income
The financial situation of a bankrupt can change during the bankruptcy process. You’re required to submit monthly income reports during your bankruptcy. If there’s an increase in income, it may trigger surplus income requirements, thus increasing the cost of bankruptcy and extending its timeline. Conversely, a reduction in income could result in no requirement to pay surplus income, reducing the length of time you remain in bankruptcy.
7. Role of a Licensed Insolvency Trustee
A Licensed Insolvency Trustee (LIT) plays a vital role in the bankruptcy process. They review your entire financial situation to determine whether you meet the test for being insolvent and whether bankruptcy would be the most beneficial option for you. They also help you understand how changes in your income can affect your bankruptcy.
8. Surplus Income Principle
The surplus income principle is a critical concept in Canadian bankruptcy rules. It’s designed to strike a balance between the need to eliminate your debts and the rights of the creditors. If you earn over the threshold limit set by the government, you pay a penalty of half the amount you’re over.
9. Surplus Income Penalty Duration
The duration of the surplus income penalty depends on several factors:
- A first-time bankruptcy lasts for a minimum of 9 months, but if you’re over the earnings limit, you’re bankrupt for 21 months.
- A second-time bankruptcy lasts for a minimum of 24 months, but if you’re over the earnings limit, you’re bankrupt for 36 months.
- In a third bankruptcy, the bankruptcy court decides the duration of your bankruptcy.
10. Surplus Income Calculation
The calculation of surplus income involves several steps:
- Subtract statutory remittances and other mandatory deductions from your total monthly income.
- Subtract non-discretionary expenses from your total monthly income to determine your available monthly income.
- Compare your available monthly income with the Superintendent’s standards to determine whether you have surplus income.
- If your monthly surplus income is less than $200, you’re not required to pay any amount to your bankruptcy estate.
11. Family Situation Adjustment
The amount you’re required to pay to your bankruptcy estate is adjusted according to your share of the family unit’s available monthly income. If the non-bankrupt spouse or any other family member refuses to divulge their income or expenses, different rules are applied to determine the surplus income.
12. Conclusion
Understanding Bankruptcy Income Limits in Canada is vital if you’re considering bankruptcy as a financial solution. Always consult with a Licensed Insolvency Trustee to understand your options and how changes in your income can influence your bankruptcy process.
