*Please note this article was updated with the 2018 surplus income limits
Some of the biggest questions that people have when filing bankruptcy has to do with surplus income and how it will affect their debt repayment plan. Here are the top 10:
- What is surplus income?
When you file for bankruptcy the government sets income limits (known as the Superintendent’s Standards) based on the number of people in your family. If the family income is more than the allowed limit, you have to pay 50% of the income above that limit to the bankruptcy.
- How long do I pay it?
If it is a first bankruptcy you make payments for 21 months, if it’s a second bankruptcy you make payments for 36 months. If it is a third or more bankruptcy, you make payments for at least 36 months and then make further payments as directed by bankruptcy court.
3. Does it calculate my income before or after tax?
It is calculated based on your pay after tax and other mandatory deductions.
- Does it take my living expenses into account?
Yes and no. Certain expenses are considered such as child support, child care and medical expenses. It does not take into account living expenses such as rent or car payment.
- How do you determine what I have to pay?
Let’s use the following example. You are single, pay child support of $500 per month, and take home $4,000 a month.
| Income and Expenses | Total |
| Net income | $4,000 |
| Child Support | $500 |
| Available Income | $3,500 |
| 2018 Surplus Income Limit for Single Person | $2,152 |
Your total available income amount comes in $1,348 over the government limit. When filing a bankruptcy, you are required to pay 50% of that amount to the estate as part of your monthly payments. For example, in this scenario, the individual is required to pay an additional $674.
Payment required (50%): $674
- How does overtime or my fluctuating pay effect surplus income?
The amount you pay is based on your average income during the first six months in the case of a first time bankruptcy and twenty one months in the case of a second time bankrupt. This will average out any fluctuations in income.
- What happens if I don’t agree with what I am told to pay?
You can have your Trustee request mediation with the Office of the Superintendent of Bankruptcy.
- What if I still don’t agree with what I am told to pay after mediation?
The matter will then be brought to bankruptcy court.
- Do I have to include my spouse’s income?
Yes. However, you spouse can choose not to disclose his or her income. That changes your income limit to 50% of the standard.
- Is there any way to avoid having to pay surplus income?
Surplus income applies only to a bankruptcy. If you don’t want to have to monitor your income every month, a consumer proposal may be a better option for you.
Hi there
I am a penssioner, no income only penssion income(OAS+Supplemetary +BC assitance +rent assisstance,BChousing) all together close to $1800/moth
I have no valuable household frniture,no car,no property.
and about $110K debt
would you suggest to file for bankrupcy ? creditors are major banks
do you think they take legal action against me(I am single with a mentally ill son of 27 years old at home))
please advise as I can not pay to trustee or lawyer.
thank you so much.
Hi Jalal. As a pensioner it is unlikely that the banks will take you to court, since you have no wages to garnishee. You could file bankruptcy, but given your limited income, and the fact that it is unlikely you will be sued, it may be simpler to open a new bank account at a new bank and tell your creditors that you are on a pension and unable to pay. A trustee can provide further advice in a no- charge initial consultation.
Me and my wife both went bankrupt. I was 21 months and she was 9 months. After her 9 months and $200 payments were done we got a call a year later as I was almost done about her owing $4000 in surplus income and she was pushed to 21 months. They stopped taking payments a year ago and now were on the hook for $4000 for her and $3000 for me. What can I do about this?
Hi Jon. I would suggest that to start you should request a meeting with your trustee (not an administrator or clerk, but an actual licensed insolvency trustee) to get a full explanation. Once the 9 months was up your wife should have received an automatic discharge, so once she is discharged the trustee can’t come back a year later and ask for more money for surplus income.
If you are not satisfied with the explanation you can contact the Office of the Superintendent of Bankruptcy and ask them to investigate.
But what if I don’t have surplus Income? What if my families expenses are only 3500 and we have an allowance of 3882 what happens to the 382 dollars can I keep it as savings?
Yes, if you have no surplus income, your trustee will probably require you to make a minimum payment each month to cover the administrative costs of the bankruptcy, but you won’t have to pay anything extra.
Hello, I’m a book kepper and have a client who is in bankruptcy. The pre and post bankruptcy income tax has already been filled in 2015. There as surplus income payments made in 2016. Do these payments get included in the 2016 income tax return some where? Other information : client is a sole proprietor, total amount of bankruptcy is 21 months.
Hi Sharmon. No, surplus income payments are not tax deductible, so they are not reported anywhere on a tax return.
Hello. What are the rules for retroactive lump sum payments unexpectedly made during the period of bankruptcy? I was without child support payments beforehand, and was told by a trustee to include it in my income report, while the credit counsellor told me to only submit the portion allotted for the months relevant to the bankruptcy timeframe because the rest under normal circumstances would have been paid to me in the months preceding my filing for bankruptcy. He indicated that it wasn’t fair to include the whole amount as it is not regular income and it would have been paid out in monthly increments before filing for bankruptcy had the support payor not gone delinquent with payments for 4 months prior. (The credit counsellor calculated for me the amount to include in my report) . The FRO found my ex, and I received a sudden lump sum payment of over $2000 which combined with my income put me over the threshold monthly limit I was given by $2271.81 for that month alone! Please advise, as I have been given conflicting information.
Hi Erika. Without all of the facts it is impossible to answer your question.
However, I can tell you this: surplus income is based on your average income for the period of bankruptcy, so if you got a lump sum in one month, but were below the limit in all other months, it is possible that your average income is still below the surplus income limit, so there may be no implications.
I would suggest you request a meeting with your trustee to review all of the numbers for at least the first seven months of your bankruptcy to determine whether or not you have surplus income.
My only income is pensions (OAP, CPP, and two work pensions).
In addition to credit card debt, I owe money for income tax to CRA.
What happens to the CRA debt in a Consumer Proposal?
What happens to the CRA debt in a Bankruptcy?
What happens to CRA debt if I change banks, and then call my credit card companies and CRA and tell them I have no money to pay? There are no wages to garnishee; only income is pensions. I have no assets that can be liquidated.
CRA debt is discharged (eliminated) in a consumer proposal or bankruptcy.
You are correct, if you have no wages, CRA cannot garnishee your wages, so one option for people on a pension with no wages is to do as you suggest and advise CRA that you can’t pay. However, CRA does have the ability to withhold a portion of your CPP and apply it against any taxes owing, so it is possible for them to recover money from you even if you have no wages.
Hi
We are considering filing for bankruptcy for 25 year old student loans. We are ready to retire in a matter of months. We are low income seniors and will be eligible for GIS. Our income alone puts us under the threshold for surplus income. However, we do receive money for the care and maintenance of a special needs adult who is not our own and it is considered nontaxable income. Would this be considered in our income? Also would GIS be included as well?
Hi Wendy. In general terms all income is considered for the purposes of calculating surplus income. However, if you have specific expenses, such as medical or related expenses for a dependent, that could reduce or eliminate your surplus income obligations. In general, if you are receiving GIS, your income is probably below the surplus income guidelines.
For a specific answer in your situation, please contact a Licensed Insolvency Trustee who can do the calculations in your specific circumstances and advise you if you are likely to have surplus income.
I am single senior with pension income of $1620. Will bankruptcy take any of my monthly pension?
Hi Bill. In 2018 a single person is allowed to have income of over $2,150 before there is any obligation to pay surplus income, so in your case there will be no surplus income obligations.
Hi there,
How does having a mortgage during bankruptcy affect surplus income? I understand that the calculation for surplus income is your net income less the income limits determined by the government. But what if you have a mortgage and it’s halfof what you make a months after taxes? For example.
Net Income: $4200
Income limit: $2679 for household of 2
Income surplus: $1521
Income surplus to be paid (50%):760.50
But what if you have a mortgage of $2100 a month? So half of your income already is used up for the mortgage. And then expected to pay $760.50. That leaves $1339.50 left to cover all the other basic living expenses for two people.
So mortgages is a fixed deduction can it be used in the calculation?
Thank you in advance for your reply.
Unfortunately, mortgage payments are not used to adjust your surplus income obligation. Only non-discretionary expenses are deducted: support payments, Court imposed fines, medical expenses, tax deductible employment expenses.
This is something you should discuss in detail with your licenced insolvency trustee BEFORE you file. Good luck sorting things out.
Does a common-law spouse need to be included as none of the debts are linked to her but she lives in the owned home
If you “know” your spouse’s income you are required to disclose it when you file either bankruptcy or a proposal. If you don’t know it your spouse is under no obligation to tell you, but (and this is a BIG but) the allowable amount of household income (called the surplus income threshold) will be reduced to 50% of the published level when your trustee calculates your payments based on your income.
I apologize if that is a bit confusing – the best thing to do is to make certain when you are speaking to a licenced insolvency trustee that you discuss all of this in detail before you make a decision as to ho you are going to deal with your debts.
Are child support payments being made to me considered surplus income?
You are required to disclose any support payments you receive and they are included in the surplus income calculation. Just be careful if the support includes Section 7 expenses for the kids’ activities that you show the off=setting expense so you aren’t dinged for that too. Only the support portion of the money received is income.
If you still aren’t sure then contact the licenced insolvency trustee you are dealing with and ask them to explain this to you.
I had to file bankruptcy less then 6 months ago, for a second time, but i told them that my income would likely change due to the economy with things being slow, i did have a bit of surplus income of 175 that i was paying extra each month to the trustees but now i was given a option that i would have to be laid off or work 1 day less a week last week, so now i earn less then the 2150 allowed, will i still have to pay surplus. my pay difference is likely to stay this way now as 1 other employee that has more seniority than me has been working only 4 day weeks all last year 🙁
The obligation to pay surplus is usually based on your “average income” during the first 6 or 7 months of your bankruptcy. I think you should give your trustee a call, explain what has happened with your job and ask them to take another look at your surplus. It may very well be that your average income may be below the threshold and not only will you no longer be required to pay surplus, you might qualify for a 9 month bankruptcy instead of the 21 months they told you to expect.
I was in a car accident and my car is now a write off. Will the payout from insurance be considered surplus income? This will be money I need to try and buy another car.
No, it will not be treated as income, but there may be issues if you don’t use the money to buy a “new to you” car. Give your trustee a call and they can explain the rules that apply to this sort of thing. It happens more often than you may think and your trustee will know what to do.
Will a payout for pain and suffering from a car accident be taken by bankruptcy.
I receive non taxable disability payments from a school board and Canada pension disability. Are they considered income in bankruptcy. Also if not in bankruptcy yet can they be garnisheed by creditors.
Hi Josie. This is a complicated question, and I don’t want to give a generic answer. I would suggest you contact a Licensed Insolvency Trustee (or a bankruptcy lawyer) and have them review the accident settlement documents before you file a bankruptcy so that they can advise you on how it is likely to be treated in a bankruptcy.
Hi,
We have a family of 3. Our one child goes to daycare for $1100/month. My husband chooses to not disclose his salary and I understand that the surplus income threshold will be cut in half (from $3372 to $1686 for 2019). Will the deduction of childcare towards my income also be cut in half? Will Child Care Benefits also count towards income half as much?
Thank you
The only adjustment to the calculation is the reduction of the threshold. You may still claim the full amount of daycare, medical and other “non-discretionary” expenses from your income.
Is the Child Canada Benefit that I receive considered in my bankruptcy? I only just found out that I was eligible to receive the benefit this year as my husband hadn’t filed his taxes since 2014 up until this year. If I receive a lump sum payment of backdated child canada benefit to 2015, will this be garnished as surplus income?
Yes it most definitely is. In fact, there are rules on how to deal with retro-active benefits received for the period that pre-dates when you filed for bankruptcy. YOu should give your trustee a call and ask them to walk you through this.
Does my income tax return get credited on to my Surplus? What I mean is does tax refund help me lower my final amount owing?
It does not. Any tax refunds that are paid into your bankruptcy are in addition to any surplus income obligation you may have to pay. Sorry.
I have a trustee telling me I can only claim 50% of non discretionary expenses since my spouse is not disclosing income. I noticed your last reply to someone else asking about child care you stated that the only adjustments that will be made is to the threshold. Who should I talk to about this? It’s putting me in a really tight spot. I can’t even afford to be bankrupt anymore because they keep telling me I can’t claim 100% of child care and medical expenses.
Thanks
If you have a disagreement with your trustee about how surplus income is calculated you have the right to request third party mediation. The mediator will be appointed by the government agency that monitors and licences all trustees.
As an aside, the Directive on Surplus Income does NOT require (or allow) your trustee to reduce the allowable portion of non-discretionary expenses. All we are required to do is reduce the threshold by 50%….
I am under an exceptional amount of stress and feel I should have never gone bankrupt. We are currently a family of three. I owned up to a mistake mid-way through bankruptcy of previously unreported self-employment income of 14000 approximately. I know this was not good but I really was just trying to make ends meet. As a result, if I am paying 650 a month I will still owe at least 5000 when bankruptcy is over (36 months). As well, since this was accumulated after filing, I now owe revenue canada 5000 above surplus payments. As well, my son is 18 and can’t afford post-secondary (RESP’s taken). He wants to work next year ( for school). Now, I am thinking that his income will be considered in surplus payments or I will have to declare family of two eventhough I am basically still covering his living. I m sorry if I feel like I am being privleged but I am at my wits end and crying all the time. I am taking a few weeks off work to get myself back together.
I guess my main question here is: What is the status of my 19 year old son who is essentially dependent but working as a dishwasher to raise money for school?
Unfortunately, you need to discuss this with your trustee as every case is unique and the decision will be based on the facts of your case. The law says that the income of everyone contributing to the household should be disclosed. In most cases, part-time work for teenagers is ignored since they don’t “contribute”, but a 19 year old working full-time might be harder to ignore…
Keep in mind that the surplus income rules were put in place to make sure that there is a balance between the rights of the bankrupt and the rights of their creditors. The concept is once a household’s income exceeds the threshold every dollar the bankrupt earns above that is split 50-50 between the bankrupt and their creditors. These rules should have been clearly explained to you before you filed – it is part of the “deal” to eliminate your debts. I am sorry if that doesn’t sound fair.
Hi, I approached a LIT to prepare a consumer proposal for my creditors, (previous bankrupt), my majority credit holder is CRA, CRA turned down the proposal (I had 4 years of taxes not filed so they sent me an arbitrary assessment for 29k, at the time of the proposal the taxes still were not filed), I feel that once the taxes were filed CRA would have accepted the proposal, when I mentioned that my LIT advised me that I was not making enough money to pay the proposal payments and at that time I wasn’t, I said that I may have a well paying job again which I now do, now I am facing surplus income that keeps growing, I have asked the LIT to switch my bankruptcy to a consumer proposal. given my situation and my request can the LIT tell me I can’t change my position? I feel I was ill advised to file bankruptcy because I was right and as they were filing the pre and post bankruptcy returns they saw my current income at this new job and why didn’t they think to approach consumer proposal again?
You know, you don’t have to stay with the same trustee if you want to file a consumer proposal as an undischarged bankrupt… Go and speak to another trustee and see what they say about your situation and your options. Good luck.
My husband filed for bankruptcy. I work at a daycare and I get a discount to our child’s daycare fee. When my husband signed for bankruptcy he was told that the daycare fee must be under his name so it will be conaidered as an expenses to declare the monthly household income. Is it really necessary to name the daycare fee under his name? Thank you.
The amount you are required to pay in a bankruptcy is based on family income, so whether the daycare fees are paid by you or your husband does not make a significant difference in the surplus income calculation. I would suggest that your husband meet with his trustee and ask them to explain the difference in the math if you or he is paying the daycare fees, and from there you can decide if it’s an issue.
We had to defend against a questionable lawsuit brought against us by the creditor in the bankruptcy. It cost $15,000.00 in legal defenses and when we could no longer support legal costs to continue fighting we were forced to take a settlement proposal that saw us pay a farther $25,000.00 to the Creditor which was registered with the Supreme Court of NS.
This “debt” was paid off during this bankruptcy and I have 4 months left in this bankruptcy.
My question is, are these amounts, the settlement and the legal costs, which I had no control over claimable as non-discretionary expenses?
Bruce
Court ordered payments are generally deductible as non-discretionary expenses to reduce your income, but you really need to have this discussion with the trustee handling your bankruptcy…
I’ve been in bankruptcy since mid-November of this year, and when I calculate my average monthly income (one month having 3 paycheques), it would have me in bankruptcy for 21 months.
If I were to request my employer to deduct an extra $100 per paycheque in tax deductions, thus lowering my net income and being eligible for a 9 month bankruptcy – would this be seen as fraudulent, or breaking trust? I know many people request having more taxes taken off to cover any amount they may owe when filing their income tax, but if I were to make this change all of sudden WHILE being bankrupt, could it be taken as me fudging my income? I don’t want to be dishonest at all, but the stress this is causing me, I’d like to be discharged at 9 months, rather than 21.
Hi Erik. This is a question you should discuss with your trustee, since presumably your trustee reviewed your projected income in advance with you before filing bankruptcy. If you expect to owe taxes, than increasing your deductions at source makes sense, and is not fraudulent, but if you increase the amount of taxes withheld to an excessive amount either the trustee or your creditors could object to your bankruptcy discharge (since your net income is now significantly lower than what was reported on your bankruptcy documents, even though you are still in the same job). So the answer to your question is if it’s reasonable you should be fine, but if it isn’t reasonable, it could cause unintended consequences. So again, I would suggest you discuss this with your trustee to ensure you have considered all of the implications.
I filed for bankruptcy 2 months ago, and during those 2 months I was under the surplus income threshold, as my only income was from social assistance. In month 3 I will be starting a new job, and as a result will also begin making child support payments for the first time. At that point, whether or not I will have surplus income is going to depend on how much child support I am paying. Is there any limit or rule as to how much I can deduct as non-discretionary child support expense? In other words, can I pay above the government calculation amount for child support, and thus benefit from staying below the surplus income threshold?
Hi Gary. Your trustee will require proof of child support paid, and if the amount appears unreasonable they may request a copy of your child support agreement, and/or receipts from your ex. So if you are required to pay $500 per month and you start paying $2,000 per month, your trustee may question that. (It will also mean that your ex may be required to include those higher payments in their income, which may have tax consequences for them, so you want to consider all implications before making changes). If you are behind on your child support and make catch up payments, that would be acceptable. I would suggest you discuss this with your trustee so you are aware of all implications.
My daughter is going through bankruptcy with a LIT. She has some medical issues, but has been working but she has not been punctual or complete with her monthly reports of income and medical expenses. As a result she has accumulated about $5k in surplus income that she is required to pay. No way she can make a lump payment.
Questions:
1. Is the LIT authorized/required to set up a repayment plan where she can pay this amount over time?
2. If she produced an accurate report of her medical expenses (dates, amounts, prescribing physician etc) is the LIT authorized to accept same to reduce her surplus income?
Thanks for any help you can provide
If your daughter is unable to pay the required suprlus income amounts in the time allotted for her bankruptcy she may request “mediation” that may allow payments over time (beyond the bankruptcy period). Mediation is fairly common – she just has to call her trustee and request it. If terms cannot be agreed upon her trustee wil schedule a Court hearing and the judge can set whatever payment terms they feel are warranted. In regards to the paperwork, most trustee offices will process adjustments if/when provided with theb proper receipts as proof medical expenses were paid (as long as they aren’t being re-imbursed by insurance or an employer).
I have filed bankruptcy 4 months ago, and at the time of filing I was not working. Tomorrow I start a new job that will have me paying a surplus of approximately $1500 per month. If I choose to not disclose this income, what are the consequences and will CRA automatically deduct my surplus?
If you do not disclose the new job and income and you are caught the Court may simply refuse your discharge – that means you’ll still owe all of the debts you filed bankruptcy for. It might make sense for you to call your trustee and ask them if you shouldk,switch your bankruptcy into a proposal. The advantage of a proposal is that your payments will be fixed. You’ll end up paying longer than you will if you remain in bankruptcy, but the amount is almost always less.
The problem with “hiding” your income is that sooner or later you have to file a tax return and your trustee will see it. Then you’ll have to explain why you didn’t disclose it…
My husband filed bankruptcy. I was askes to declare my income along with my husband. Is Canada Child Benefit considered my income too? Should that be declared? Thank you.
Last fall the government sent out instructions to the trustee community that while the Child Tax Benefit is a form of income to be disclosed, it is NOT to be included when determining if a bankrupt owes surplus income payments. So have your husband ask his trustee how they want it listed on his monthly statements of income and expense.
Re: Superintendent’s Threshold for Surplus Income: Should I wait until the new threshold is in force to file for bankruptcy? e.g. If I file on March 5, 2022 with the new threshold announced on March 23, 2022, does the “old” 2020-2021 threshold apply only to March or is it applied to every month of my bankruptcy for surplus calculations? I know I will have surplus income and will be in bankruptcy for 21 months so the threshold used will impact calculations for the amount owed. It seems unfair to use the 2020-21 threshold for the entire course of the bankruptcy. It seems if a previous threshold will be applied to the entire bankruptcy surplus calculations, it would be worth waiting a few weeks until the new one is announced.
Hi Murphy. The surplus thresholds are adjusted each year. At our firm, we apply them retroactively, so if you file on March 5, 2022, even if the 2022 thresholds are not announced until the end of March, 2022, we apply the 2022 threshold back to January 2022. So whether you file at the beginning or end of the month does not matter. I suggest you discuss with your licensed insolvency trustee to confirm the exact calculation method that they use.
I am currently on disability receiving CPP and also from an insurance Company , through employer. If the Insurance Company offers me a payout to end payments, how is that handled in a bankruptcy?
Thanks
It could be treated as income in the month you receive it, or it could be applied to the same period the payment is covering. It depends on how it is worded. This is something to discuss with your trustee before you reach any agreements…