If you’ve read about what goes into determining the cost of your bankruptcy in Canada, you know that one of the factors is something called Surplus Income.
Conceptually surplus income in a bankruptcy says that the amount you pay is more if your income is higher. There is a base amount that you can keep, often times referred to as the surplus income threshold limit. If you surplus income exceeds this limit, you pay 50% of the surplus into your bankruptcy.
To determine whether or not you have an obligation to pay Surplus Income you need to know:
- how many people live in your household,
- how much money of every type each of these people have coming in to the household each month, and
- if any of them (including yourself) are paying for any allowable deductions.
While this sounds simple, the process for calculating your surplus can be quite complicated. Here are the basic steps.
To determine surplus income we first compare the total household income (the total amount of money coming in for everyone that lives in your household minus the allowable deductions) and compare it to the government standard for that number of people. If the total income is equal to or less than the government standard then there’s no surplus income payment.
If the total household income is more than $200 over the government standard then you may be required to make a surplus income payment.
The next step is to determine your share of the amount that the total household income exceeds the government standard. If your share is less than $200 then no surplus income obligation is payable.
If your share is more than $200 then your surplus income obligation is equal to 50% of whatever your share is worth. If it is worth $300 then your payment is $150. If it is $500 then you payment is $250, etc.
This calculation is done for the first six or seven months and then the average is calculated. You are only required to make surplus income obligation payments if your average obligation is over $100. If the average is below that then no payments are required.
The calculation can become quite complicated as there are allowable expense deductions and questions as to what is considered income.
To get a general indication of what your surplus income payment might be, try our surplus income bankruptcy calculator. This is an approximation only as each case is unique.
If you want to know whether or not you would have to pay surplus income in a bankruptcy and how much that might be, contact a bankruptcy trustee. They will walk you through the calculation based on your unique circumstances.
4 years ago we walked away from our house and new truck and approximately 200,000 in credit card debt due to a failing business and loss of employment.I wanted to file bankruptcy but my husband was too proud.Our home was sold for less than half of the appraised value and now our gst and income tax returns have been seized.The truck was auctioned off for peanuts and now they are threatening to garnish wages or seize our bank account.We owe approximately 160,000 for these 2 debts.If we filed for bankruptcy would these debts be included.I am soo tired of running and there is no way we could live long enough to ever pay our debt back.
Yes, all unsecured debts, including GST, HST, and income taxes, are discharged in a bankruptcy. I suggest you contact a trustee immediately to explore your options, so that you can stop running and get a fresh start. Here’s the link: http://bankruptcy-canada.com/contact-a-trustee/
Are non-discretionary/medical expenses only applicable to the specific month in which the service was provided/issued? Is the full amount of the non-discretionary/medical expenses applied/considered for each of the bankrupt’s dependents?
Hi Heather. Surplus income is calculated based on averages, so it is less important which month the expenses were incurred, as long as they were incurred during the bankruptcy period. Expenses for your dependants would also be considered. I suggest you discuss this with your trustee, and if there are any questions book a meeting with your trustee, and bring copies of all of your receipts, and ask them to do the calculation with you so you can see how it works.
CRA allows pension income splitting between spouses, even when only one of them has declared bankruptcy. In our case this is beneficial since I (as the bankrupt) have less income than my spouse. Could you tell me if this split pension will be regarded income for me in bankruptcy so that my surplus payments will be higher?
Appreciate your advice,
Hi Mary. This is a question you should ask your bankruptcy trustee.
Pension splitting is a tax system concept to reduce taxes for seniors and does not change the actual income, therefore would not affect the surplus calculation directly. If it occurs in the year of bankruptcy or a prior year and generates a tax refund, then the refunds would go the bankruptcy estate. If the refund is in the year before the discharge while surplus is still being calculated, then that refund could impact the surplus calculation.
Again, your trustee can review your monthly income and tax statements and give you a precise answer in your case.