How To Calculate Payments in a Bankruptcy in Canada

Category: Cost of Bankruptcy (10) comments

calculating the cost of bankruptcy

While calculating the cost of bankruptcy may not be difficult, it is different for each person who declares bankruptcy in Canada because the ultimate cost is based on their monthly income, expenses, family size and assets.

There are three different payments a person may pay in filing a bankruptcy:

  1. Monthly contributions – Which is the fee to cover administrative costs: government fee, counselling sessions, Trustee’s time, mailing, preparation for filing your tax return etc. The usual standard cost is around $200 per month per person.
  2. Surplus income payments – The surplus income that is required depends on your net income, minus any monthly non-discretionary expenses and minus the amount given for the Superintendent’s Directive, depending on the number of people you have to support, which includes your spouse and children less than 18 years old. The non-discretionary expenses are for child support payments, spousal support payments, child care expenses, expenses associated with medical condition and court-imposed fines or penalties that are in the process of being paid. The number of people in the bankrupt household determines the standard to be used.
  3. Assets – You surrender certain assets to a trustee in exchange for the elimination of you debt however you can also arrange to keep the asset by buying it back from the bankruptcy estate. How much you will have to pay for these assets is based on their realizable value (how much the licensed insolvency trustee could recover if they were to sell the asset) and what assets or asset value is exempt from seizure based on provincial exemption limits. Assets you may be required to surrender include:
  • Equity in your house
  • The value of a car with no loans and are over the provincial exemption limit
  • Investments (like Canada savings bonds or other non-exempt assets)
  • Tax refund for prior years that you haven’t filed and for the year that you are bankrupt
  • RRSP contributions that you have made in the last year.

Based on these costs, there are three questions you should discuss with your Licensed Insolvency Trustee prior to filing:

  1. What your potential payments may be;
  2. If there is a risk that you will have to pay surplus income and if you do, what other options are there including a consumer proposal in Canada;
  3. What assets you may lost and, if they are substantial, would a consumer proposal make more sense.

All of these questions should be answered before you sign so there are little to no surprises in the cost of your bankruptcy.

Category: Cost of Bankruptcy |

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  1. Shelly

    Are you still required to pay your debt if you are now under the following:
    EI sick benefits, WSIB, ODSP and private disability insurance?

    Thank you for your time..

    1. J. Douglas Hoyes

      Hi Shelly. Debts continue to exist, regardless of your sources of income. However, if you don’t pay, a creditor cannot garnishee your wages if you are not working, so it is more difficult for a creditor to collect from you if you are getting EI or disability insurance.

  2. Peter

    Can a creditor garnish any of the following income? Are any of these income sources used to calculate income on household income for bankruptcy?

    1.) Disability replacement insurance income from employment (tax free)
    2.) Veterans insurance income replacement benefits (taxable)
    3.) Veterans incapacity/attendance allowances (tax free)
    4) CPP Disaibility (taxable)
    5) CPP Disability (Child portion)

    1. J. Douglas Hoyes

      Hi Peter. You are asking two different questions.

      For the purposes of calculating surplus income in a bankruptcy in Canada, all sources of income are included.

      If you do not go bankrupt, a normal creditor (like a credit card company) can generally only sue you and get a court order to garnishee wages, so since pensions are not wages, they generally cannot be garnisheed. However, if you owe money to your bank and your pension money is deposited into your bank account, it is no longer pension money (it’s cash in the bank), so if you owed your bank money they could theoretically take it. Also, if you owe CRA money, they have the power to withhold funds from your CPP payments.

      A licensed insolvency trustee can explain in more detail.

  3. Tracy

    My common law husband claimed a second bankruptcy a year and a half ago. We were told he would be paying for 3 years. His monthly payments are almost double what we pay in rent. I realize you pay off what you earn but is there a cap on what he can pay since his payments are so high?

    1. J. Douglas Hoyes

      Hi Tracy. Surplus income payments are based on your income and family situation, so in theory there is no cap; the higher your income, the higher your payments. Presumably given the size of his debts a consumer proposal was not a viable option? I would suggest that he discuss this with his trustee, and confirm that the surplus income calculation is being done correctly.

    1. J. Douglas Hoyes

      Hi Lee. I’m not sure what you mean. When you file a bankruptcy you sign a document detailing what you are required to pay, and during the bankruptcy you submit proof of your income which further determines your payments, which are based on government rules, so there is no negotiating those requirements. If you require more time to make the required payments you can discuss it with your trustee who can advise you on your options.

  4. Marlene

    If I declare bankruptcy, and I have a personal term insurance policy, and my adult children are the beneficiaries,
    1) will anything happen to this policy … there is no accumulated cash in the policy
    2) will I still be able to have enough money to make my monthly payments for this policy or will I be left with only enough money for food and rent ,
    3) how is the monthly amount I would have to pay for the bankruptcy or consolidation determined. I only receive CPP and OAS as my income

    I own a 2011 Rogue but make monthly payments on it to a finance company
    (It has been in a few accidents but runs ok, but I don’t know how it would be valued in Manitoba in a bankruptcy or a consolidation with a consumer proposal.
    1) will I be able to keep this vehicle
    2) will I be left with enough money to continue the monthly payment for this vehicle ($300.00/month)plus the monthly Autopac payment required ($130.00/month) plus gas , etc
    3) would a declaration of bankruptcy or a consolidation be better for me? I have no assets other than my vehicle with a car payment
    Thank you

    1. J. Douglas Hoyes

      Hi Marlene. These are great questions that are best answered with a free consultation with a licensed insolvency trustee, so that they can give you a detailed answer. In general, term insurance has no value in a bankruptcy, so you can keep it, and with a financed car you can either keep making the payments and keep the car, or surrender it and stop paying.


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