*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|
|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.