Surplus income when bankrupt in Canada and paying spousal and child support


Category: Bankruptcy Q&A (12) comments

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Question: My income is $3200 take home per month, I am separated from my wife but I pay her $500 per month spousal support and $815 per month in child support, how would the surplus income work for this situation? Are they my dependants? Or is my threshold still $2,610 for a single person?

Answer: Since the children and your ex-wife are not living with you, they are not considered dependants for the purpose of calculating surplus income while bankrupt in Canada.

However, the amount you pay in court ordered child support and spousal support is used to reduce your net income.

In your example, using the 2024 surplus income threshold numbers, your trustee would take your take home pay of $3,200 per month and deduct the spousal support of $500 and the child support of $815 that you pay each month, for a net income of $1,885.

Since $1,885 is below the threshold of $2,610 for a single person, you would not be required to make surplus income payments.

NOTE: Each month that you are bankrupt you are required to submit proof of your monthly income (your paystubs), and proof that you have paid your spousal and child support (unless it is deducted directly from your paycheque; if not, proof of payment in the form of a receipt from your ex-wife or some other proof would be required).  Based on that proof each month your trustee calculates your average net income for surplus income purposes, and determines the amount you are required to pay.  If you don’t submit proof of support payments, you don’t get the deductions from your income.

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  1. Smith

    My ex spouse has filled bankruptcy. He is court ordered to pay child support, which he has not been paying. Do I need to file a preferred claim?

    Reply
    1. J. Douglas Hoyes

      You could file a preferred claim, but child support survives a bankruptcy, so your ex-spouse will be required to make all payments for child support whether or not they are bankrupt. You could start by contacting the trustee to see if there will be any money distributed to the creditors.

      Reply
  2. Amanda Clayton

    If I’m in bankruptcy and all of a sudden get child support payments how does that work we are talking about 13 yrs

    Reply
    1. Ted Michalos

      13 years as a lumpsum payment? You need to contact your trustee as there are a few different options to consider. Depending on how much you owe and how much you have received it might make sense to flip your bankruptcy into a proposal. If you are receiving enough money perhaps the bankruptcy should be annulled (cancelled). If it makes more sense to complete the bankruptcy there are a couple of different ways the support may be treated – your trustee will go over all of them with you.

      Reply
  3. Paul McQuay

    After receiving CERB I was advised to apply for EI if I still needed help. I did not have enough hours to qualify for EI but the Service Canada agent added 300 hours to my credit and so I could qualify. As a result they would not allow me to collect CRB. The temporary EI relief was then extended to 50 weeks. At the end of the 50 weeks, the trustee in bankruptcy advised that I owed 50% of the 50 weeks of EI. At the end of the 50 weeks I had an accident and have only my pension income now, so there is no extra income to pay this amount. But until I do pay, the trustee will not release my discharge. Apparently CERB and CRB were authorized under new legislation which exempted them from surplus, but temporary EI relief, which had the same criteria and intent as the other covid relief was confined to the pre-pandemic rules. I even have to pay tax on the full 100% but have to give 50% to the trustee. So I get to retain about 25% of EI paid to me. I reported the “EI” income every month as required on my monthly report to the trustee. I believe the trustee was negligent in not advising me earlier. I cannot believe EI intended for 50% of my covid relief for that year to go to my trustee, and still be taxed on the 100% of EI paid. It doesn’t make any sense and was not the intention of covid relief.

    Reply
    1. Ted Michalos

      The surplus income rules are very specific. If you disagree with the way they were calculated you may request mediation or ask your trustee to schedule a hearing ion Bankruptcy Court and let a judge decide what is fair. Your trustee doesn’t have the discretion to change the calculation, nor do they have any input if the government’s policies. If you think your trustee was negligent you have the right to lodge a complaint with the Office of the Superintendent of Bankruptcy.

      Reply
  4. Eric Noseworthy

    I have many questions

    i have filed for bankruptcy as a single parent with shared 50/50 custody, the first question is do i count as a 2 person household or a 1.5?

    Depending on the answer above, what is my total allowable monthly income able to be for a discharged in 9 months?

    The follow up to that would be, is there a $200 buffer to that monthly income like i have read in several places?

    What is the threshold dollar amount based on my above situation that would change it from 9 to 21 months?

    Do student loan and student grants count as income?

    Finally

    Reply
    1. J. Douglas Hoyes

      Hi Eric. These are questions you should ask your trustee, since they will be the ones implementing the rules. There is no “1.5” person family, so you are either a family of 1 or 2. There is a “$200 buffer”, such that you are only required to pay the surplus income penalty if your average income is more than $200 over the surplus income limit. Again, your trustee can give you a complete answer based on your specific circumstances.

      Reply
  5. Rita

    I am a 68 year old woman that has gone bankrupt 3 times. I haven’t been discharged from.my 3rd , which was over 10 years ago. I am still employed as I was trying to pay off my $40,000 debt I have gotten myself into again!! $10,000 of the debt is a personal loan I MUST pay off. I would like to retire soon as my body is wearing down!! Is there any help for me??

    Reply
    1. Ted Michalos

      You can’t file a 4th bankruptcy until the 3rd has been discharged. If you file a consumer proposal as a bankrupt it will only include the debts you had when you filed your third bankruptcy. Until you clear the 3rd bankruptcy up you don’t have a lot of options…

      Reply
  6. Ryan

    I am currently bankrupt and am self employed. My income varies drastically monthly. It’s my understanding that the income is averaged out monthly after expenses at the end of the year because I may have one month that has great income and then 3 months of zero income however I still have business expenses. I am concerned at the end of the bankruptcy, because of the inconsistency, I may have not paid enough of my surplus income. I am aware that I would not be discharged because all of the surplus hasn’t been paid but is there a grace period to catch up the remainder? Or how would that work?

    Reply
    1. Ted Michalos

      You are right about the averaging – it is designed to smooth out your income over time. If at the end of the 21 months (or 36 if this is a second bankruptcy) you still owe money you can enter into a mediated payment plan with your trustee. As long as you meet the terms of the payment plan, when it is done your trustee may discharge (release) you from bankruptcy. If you fail to meet the terms your trustee has to schedule a hearing in Court and a judge gets to decide what to do with you.

      Reply

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