Understanding Surplus Income in Bankruptcy in Canada
When it comes to addressing debt relief solutions or considering bankruptcy in Canada, one term that consistently comes up is surplus income. This factor plays a critical role in determining the cost of bankruptcy for Canadians. But what exactly is surplus income and how does it affect bankruptcy? We delve into these details in this article.
What is Surplus Income?
Surplus income is a computation established by the Canadian government. It considers the household income and the number of people within that household. The government sets net monthly thresholds for a person or a family, which allows them to maintain a reasonable standard of living in Canada.
This surplus income calculation helps determine how much you need to pay when filing bankruptcy and the time frame over which you have to pay.
The Role of a Licensed Insolvency Trustee
A Licensed Insolvency Trustee plays a crucial role in the bankruptcy process. They use the government’s set thresholds to determine if you need to make payments into your bankruptcy, and how much this will be.
For your trustee to ensure the appropriate amount is paid, you must provide proof of income each month as part of the bankruptcy process. This includes all forms of income, such as child tax credits and pensions.
Surplus Income Thresholds for 2023
The government updates the surplus income thresholds each year. Here are the 2023 monthly income thresholds in Canada, as determined by the Office of the Superintendent of Bankruptcy Canada, based on household size:
Size of Household Income Threshold (2023)
| 1 | $2,543 |
|---|---|
| 2 | $3,165 |
| 3 | $3,891 |
| 4 | $4,725 |
| 5 | $5,359 |
| 6 | $6,044 |
| 7 | $6,729 |
When filing for bankruptcy, every dollar made above these thresholds incurs a surplus income payment of 50%.
Calculating Surplus Income
The Bankruptcy and Insolvency Act, laid out by the Canadian government, defines surplus income. It varies for each individual based on their circumstances and income.
Surplus income takes into account:
- The monthly net income of your household
- The number of dependents in your household
- The amount of deductible expenses you may have, including childcare payments, medical bills, penalties, etc.
This amount is calculated by subtracting the threshold from a household’s net income, then multiplying the remainder by 50% to establish the monthly payment that must be made. This monthly payment must be made for the duration of the bankruptcy.
Each month, the surplus income will be recalculated, depending on the monthly proof of income submitted to your Licensed Insolvency Trustee.
The Impact of Surplus Income on Bankruptcy Duration
Surplus income affects both the total cost of your bankruptcy and its duration. If the surplus income payments are not made, you will not be discharged from bankruptcy at all.
Generally, if your surplus income is greater than $200 each month, your bankruptcy will be extended automatically. This happens if you are paying your Licensed Insolvency Trustee over $100 each month in surplus income payments.
For a first time bankruptcy, you will need to continue paying your surplus income payments for around an additional year. For a second bankruptcy, this duration extends to approximately three additional years.
Considerations When Surplus Income Payments Are High
Surplus income can significantly impact the overall cost and length of a bankruptcy. If you cannot make your surplus income payments, you will not be discharged from bankruptcy at all.
Sometimes, the requirement to pay surplus income can be more than some households can afford to pay monthly. This situation may lead to your bankruptcy being extended to a longer time frame to pay the required amount.
A potential solution may be to file a consumer proposal instead. This alternative avoids surplus income payments and tailors payments to fit your household budget.
Seeking Advice from a Licensed Insolvency Trustee
Due to the impact that surplus income can have on bankruptcy, it is advisable to discuss your debt relief options with an experienced bankruptcy trustee. They can propose a bankruptcy alternative like a consumer proposal to lower your payments.
If you are unsure about the implications of surplus income, it is best to speak to a reputable Licensed Insolvency Trustee. They can guide you through surplus income and its effects on bankruptcy, as well as bankruptcy alternatives that may be more suitable for you.
Conclusion
Understanding surplus income in bankruptcy can be complex, but it’s crucial when considering bankruptcy in Canada. By seeking advice from a Licensed Insolvency Trustee and considering all your debt relief options, you can make an informed decision about your financial future.
Remember, bankruptcy is not the only solution. There are alternatives like consumer proposals that might be a better fit for your situation. The key is to understand your financial circumstances thoroughly and to discuss them with a reputable advisor.
Take control of your financial future today. Book a free consultation with a Licensed Insolvency Trustee to begin discussing your pathway to financial freedom.
