Surplus Income Payments in a Canadian Bankruptcy
It’s essential that any resident that is looking to file – or has filed – an Assignment in Bankruptcy understands precisely what they are doing.
One of the pieces of the bankruptcy puzzle in Canada is paying “surplus income” during the bankruptcy period.
It’s a requirement, and at its core, it means that the government has set income levels for various households.
If your household’s income is higher than the level the government sets, extra payments have to be made to the trustee handling your bankruptcy.
In this article, we’re going to talk through what surplus income payments in bankruptcy are, and we’re going to talk about the concept itself.
We will also discuss how it’ll be an extra cost for those who have a higher income than the government suggests.
What Is Surplus Income?
One of the components in the cost of bankruptcy in Canada is surplus income.
It’s a very simple idea: the government states that the more money you make, the more you will pay into the bankruptcy for which you apply.
The rules apply in all bankruptcies in Canada, no matter your location, how much you have to pay, and how long it depends on the income rules stated.
They differ for each person based on their income.
The government sets the level of surplus income to be paid, and every dollar that your family has made higher than that level is subjected to a 50% surplus income payment while you are bankrupt.
Let’s look at an example:
If your surplus income each month comes to more than $200 and you are paying more than $100 per month to the bankruptcy trustee in surplus income payments, the bankruptcy is extended automatically. If you are on your first bankruptcy, you can expect it to be extended for twelve months. A second bankruptcy has to be extended to 36 months, and you will be expected to make payments for that length of time.
Surplus income affects how much your bankruptcy should cost, as well as the time you will be bankrupt for.
So, you need to speak to a licensed insolvency trustee to know that you’ve got it right.
This figure must be discussed before you file, as if you cannot afford the surplus income payments, you’ll need to consider a consumer proposal.
This will ensure that you can lower those monthly payments.
How Will The Surplus Income Be Worked Out?
The government will determine the amount that you pay in surplus income payments, but this is defined under the Bankruptcy & Insolvency Act.
This is not the same for each family/individual going through bankruptcy.
You may not have to make these payments at all, but it will depend on how much your family earns every month, the number of dependents reliant on you, and how many expenses you may be able to deduct.
The rules have a surplus income threshold, and if you earn more than that, some of the surpluses will be contributed toward your estate, and when you work overtime, you pay more.
If you are off sick or you are not working, you pay less.
It’s so crucial that if you are dealing with bankruptcy right now, you submit the correct proof of income to your trustee.
You need to make sure that you are paying only what you should and no more.
If you end up paying less, you will owe it in the future, which is why you must be careful to provide as much proof as possible for your surplus income payments.
What You Need To Know About Surplus Income Calculations
There is a specific formula used to calculate excess income payments, and this is as follows:
Net Income – Threshold = Surplus x 50 % = Payment
What your net income is determines the threshold for the payments.
So, it’s a good idea to ask your trustee what the threshold is for your income.
You must submit monthly pay stubs to your trustee for every month that you are in bankruptcy.
As your pay increases, your surplus goes up, and as it decreases, it goes down.
What Are The Criteria?
The most significant factor when it comes to what you pay for your surplus income payments is the criteria.
So, the amount you are required to pay is based on:
- The Set Threshold. The Office of the Superintendent of Bankruptcy determines the threshold for the surplus income payments. The threshold is based on the number of people who are in the bankruptcy.
- Your Household Net Income. You need to consider the net income of every single person living with you in your home. If you have an adult child living with you, or a spouse, their income will be added to yours, and this will determine the household income. If it’s more than just you who is making payments, their income will be included in the income figure, and the amount required for your surplus income payments will be pro-ratad to each individual based on the percentage of the total income.
- Your Current Outgoings. From support payments and medical bills to childcare payments and any fines to which you are subjected, your current outgoings are considered in what you pay for your surplus income payments. Any employment expenses which you can deduct in tax season will also need to be considered.
Cost to Your Bankruptcy
The total cost of the bankruptcy will be affected by the surplus income amount, which is why it’s so important to get this amount correct.
Your trustee will be able to help you with the cost of the surplus income payments and how much you are due to pay.
These are lawfully required payments, so if you have any questions about the payments that you need to make, you should contact your trustee quickly.
Currently, you can find information on calculating payments in the Bankruptcy and Insolvency Act.
Your bankruptcy trustee must report to the Court whether the payments are made, and if these haven’t been covered, your bankruptcy cannot be discharged.
Speak to us today, and our professionals can advise you as to what to do next.