Note: the question in this article contains old surplus income limits. Click here to review the updated limits.

**Question**: If I file bankruptcy in Canada, does the surplus income test apply at the household income level or the individual level when only one party is going bankrupt? If the bankrupt party’s share of surplus household income is below the limit $200 while the total surplus income is above $200, will the process take 9 months or longer?

**Answer**: Surplus income is based on family income. The more your family earns while you are bankrupt, the more you pay. If your income, on average, is more than $200 over the limit set for your family size, your bankruptcy is extended for an additional year (from nine months to 21 months for a first time bankrupt).

So to use round numbers, if the limit for your family size was $3,000, and the family income was $3,600, that’s $600 over the limit, so the bankrupt would pay a penalty of half of that amount, or $300 per month.

But what happens if there are two people in the family with income?

Here’s a more complicated example:

James and Jill have one child, so they are a family of 3. In 2020 the limit for a family of three was $3,433. (The limits change each year). If total family income was $4,033, the family is $600 over the limit ($4,033 – $3,433), so if both James and Jill are bankrupt, they would pay a total surplus income penalty of $300 per month.

Let’s assume that James earns $1,209.90 per month, and Jill earns $2,823.10 (which totals $4,033 per month). If only James is bankrupt, then only James is required to pay his portion of the penalty. Here’s the math:

- James – $1,209.90 – 30% of total
- Jill – $2,823.10 – 70% of total

Because James earns 30% of the family income, he is required to pay 30% of the penalty. The total surplus income penalty is $300 in this example, so 30% of $300 is $90, so James is required to pay $90. Jill does not have to pay anything, since she is not bankrupt.

According to Directive No. 11R2-2019 on Surplus Income, issued by the Office of the Superintendent of Bankruptcy, if the bankrupt’s total surplus owing is less than $200 per month, they are not required to pay it, and therefore their bankruptcy will end in nine months, if they are a first time bankrupt.

So, the answer to your question is that, in this case, as a first time bankrupt James would be eligible to be discharged in nine months.

As you can see, this is a very complicated calculation, so we strongly recommend that you contact a licensed bankruptcy Canada trustee to review this calculation in detail before you decide to file bankruptcy in Canada.

I have a joint visa with my spouse and I will probably declare bankruptcy. My question is this: My bank with the said visa has cancelled the card in a letter addressed to both of us and asked to call to arrange for payment. Can they report on the credit bureau that the card was cancelled by them on my spouses credit report as well as mine ? My spouse is making the min payment required so the account is currently not overdue with no late payments. Can they report derogatory info on my spouses report ?

If the account is joint, the bank can report the account to the credit bureau for both parties. (This assumes that the account is joint, and not that one spouse has a supplemental card for the other spouse). If the payments are up to date, then presumably they will report that the payments are up to date, although if they cancelled the card that would imply that at some point the payments were not up to date. I suggest you get a copy of both of your credit reports from TransUnion and Equifax so that you can see exactly what is being reported, and then when you meet with your trustee they can review them and advise you if any other action is required.

I owe taxes and some other monies.

I’m thinking of bankruptcy, but the surplus income is a bit confusing,

If I make let’s say 5000 a month how do I know what my surplus income will be.

Surplus income is calculated based on your income, and the size of your family. Surplus income is explained here. For the detailed calculation, please contact a licensed insolvency trustee who can do the calculation for your specific circumstances.