*Please note that this article has been updated with the 2017 surplus income limits
Surplus income is calculated based on family income, so all members of the family disclose their income. If the husband is declaring bankruptcy but the wife is not going bankrupt, the husband is still supposed to declare his wife’s income for the purpose of calculating surplus income.
What happens if the non-bankrupt spouse refuses to disclose their income? A trustee has no power to compel the non-bankrupt spouse to do so, since the spouse isn’t bankrupt.
In that case, Directive 11R, paragraph 6 (2) states that:
“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.”
Complicated we know, but here’s an example (using round numbers to make this easy to understand):
If the limit for a family of two is $2,640 and the non-bankrupt spouse refuses to disclose their income, the limit is reduced to $1,320. So, if the bankrupt has income of $2,640 per month, he is $1,000 over the revised limit, so he would have a surplus obligation of half of that, or $500 per month.
As you can see failure of the non-bankrupt spouse to report income can prove to be very costly. The amount you will need to pay in surplus income payments can be much higher than if the spouse did disclose their income.
What you should do
In practice, we recommend that if possible the non-bankrupt spouse should disclose their income, because in most cases doing so will reduce the amount the bankrupt would be required to pay in surplus. If that is not possible, a consumer proposal could be considered as an alternative to filing bankruptcy and paying higher surplus income payments.
If you are concerned, talk to a bankruptcy trustee in your area before filing bankruptcy.