Note: the question in this article contains old surplus income limits. Click here to review the updated limits.
Question: I am planning on filing personal bankrupty. I am married with 1 child. My husband does not want his income calculated in the surplus income because the majority of my debt was incurred before our marriage. I bring home about $2100/mth. I have spoken with a trustee who states I would have to pay $400/mth for 21 mths. However after looking at your calculations that seems a lot higher then it should be. Can you please explain how the surplus income it calculated if based just on my income?
Answer: Surplus income is based on family income. Here’s a simple example (using 2011 government thresholds; the levels for 2012, to be released in late March, 2012, will be about the same):
Family of 3; bankrupt spouse earns $2,100 per month, non-bankrupt spouse earns $2,100 per month, no child care costs or other allowable deductions.
Total family income is $4,200 per month. The surplus income threshold for a family of 3 is $2,948 per month, so the family is $1,252 over the limit. If both adults were bankrupt, they would pay a surplus income penalty of half of the amount they are over, or $626 per month.
However, since only one spouse is bankrupt, only the bankrupt spouse is required to pay their portion of the penalty. In this case both spouses have equal income, so they each pay half of the penalty (except of course the non-bankrupt spouse does not pay any penalty), so the bankrupt spouse pays half of $626, or $313 per month. Because your income is over the limit, the bankruptcy is extended for 12 months, so instead of being bankrupt for 9 months, you would be bankrupt for 21 months, and would pay $313 per month (unless your income changes).
In your example the non-bankrupt spouse refuses to divulge his income. In that case, directive 11R2 on surplus income, paragraph 6(2) applies:
(2) Where the non-bankrupt spouse refuses or neglects to divulge his or her income or expenses, the trustee shall, for the purposes of determining surplus income, apply 50 percent of the applicable Superintendent’s standards corresponding to the number of persons in the family unit.
So in your example, if your husband will not disclose his income, your threshold is cut in half, so the calculation would be:
Your income $2,100 – half of the threshold for a family of three ($2,948 / 2 = $1,474), so you are $626 over the limit, so your surplus income penalty payment would be $313 per month for 21 months.
In other words, whether or not your husband discloses his income, in this example you pay the same either way. That’s just a coincidence because we assumed you both have the same income; if your husband’s income was higher or lower than yours, the result would be different.