When filing for bankruptcy, you may experience something called surplus income.
Effectively, this refers to how much money you earn during bankruptcy.
There are specific thresholds set that indicate what is considered a comfortable amount of money to live on.
If your income is greater than these limits, you will have to make surplus income payments.
For example, the current limit for a single-person household is $2,243.
So, if you earn $3,243 in a month, you’re $1,000 above the limit.
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This means you have to make surplus payments, and the law states you pay half of your surplus.
In this scenario, you pay $500 for that specific month.
Now, if you owe an average of $200 in surplus, your bankruptcy will be extended an extra year.
Typically a bankruptcy lasts for 9 months, so the additional year takes you to a 21-month bankruptcy.
What about three pay months?
Three pay months refer to months where you get three payment cheques in the post.
Typically, you only get two each month, but there are two months in the year where you get three.
Now, this can be a problem for people in bankruptcy as the additional payment may set you above the limit for your household.
Or, it increases the surplus payments you make for those months.
As an example, it’s possible that your regular monthly surplus payments are around $500, but your three pay months lead to a surplus payment of $1,000.
Doubling the payments in these months can be a challenging thing for someone who is bankrupt.
So, what can you do?
One option is to factor in the three pay months when averaging your overall surplus for the duration of your bankruptcy.
This will provide you with a figure to pay every single month.
It will be slightly above what you pay normally, but way less than what you’d pay during a three pay month.
Plus, it’s far easier for you to budget as you know what you’ll have to pay every month.
If you are below the limit in every month bar the three pay months, then your best approach is to save up for the surplus payments during these months.
Then, when you get paid three times and go above the limit, you should have enough money to make the payments with no problems.
Why do surplus payments exist?
Essentially, they exist to ensure that you contribute to paying off some of the debts you owe.
The income limits set by the Canadian government are calculated to ensure you have enough money to live comfortably.
Earning over these limits means you have money to spare, so it’s only fair you pay some of your creditors the money you owe.
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