Bankruptcy is a formal process that offers many people a financial lifeline each year.
According to the Office of the Superintendent of Bankruptcy Canada, almost two out of every 1,000 Canadians went bankrupt last year.
Although individuals get encouraged to consider alternative options such as consumer proposals first, bankruptcy is ideal for those saddled with lots of debt.
If you’re considering bankruptcy, one fact that gets taken into account is how much money you earn.
In Canada, bankruptcy rules and regulations get set out by the Office of the Superintendent of Bankruptcy.
Their role is to regulate bankruptcy proceedings in the country, and ensure that all parties involved in a bankruptcy follow the rules.
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One of those rules relates to a person’s income.
If a person earns more than a specific monthly threshold, they’ll be required to pay extra money into their bankruptcy.
With that in mind, your income affects how long you will be bankrupt.
An overview of surplus income
As you can imagine, many factors get considered before a decision gets made on how much a person should pay each month and over what period.
The Office of the Superintendent of Bankruptcy has a long page documenting its rules on surplus income.
The Canadian government has a net income threshold when calculating bankruptcy payments.
Anything above that gets referred to as “surplus income.”
If an individual has a monthly surplus income under $200, there are no extra payments that must be made.
However, if a person’s surplus income is equal to or greater than $200, they are legally obliged to pay 50% of that money to their creditors.
Here’s a quick example of one likely scenario:
- Your surplus income each month is $250 above the net income threshold;
- You must pay an extra $125 (50% of $250) each month.
How a surplus income can affect your bankruptcy
When you file for bankruptcy, you will get asked to provide proof of your monthly income.
Here’s how your income affects how long you will be bankrupt:
You have no surplus income
If it’s your first time filing for bankruptcy, you will get discharged after nine months.
For people filing bankruptcy for a second time, that period gets extended to two years.
And if it’s your third time, a court will decide on the length of your bankruptcy.
You have surplus income above the net income threshold
People filing for their first bankruptcy that has surplus income will only get discharged after 21 months.
In a second-time bankruptcy filing, you’ll get discharged after three years.
Finally, people filing for the third time will see their discharge length decided by a court.
Could other income factors affect your bankruptcy?
Yes.
Changes to your household’s net income or that of other people will affect how long you will remain bankrupt.
If you’d like to discuss your circumstances, talk to our bankruptcy professionals.
You can contact us on (877) 879-4770 24 hours a day, seven days a week.
We’ve helped over 100,000 Canadians deal with their insolvency and consumer proposals.
All calls to our team are strictly confidential, and there’s no risk or obligation in using our service.
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