I understand that I have to pay surplus income during my bankruptcy, which is set by the Trustee. What if I disagree with the surplus income amount and what if I can't pay it?

This is an excerpt from the government publication, All About Bankruptcy Mediation, which very nicely summarizes the concept of “surplus income”:

“At the beginning of the bankruptcy, the trustee determines whether you have any surplus income, taking into consideration the standards issued by the Superintendent of Bankruptcy, your total income, and your personal and family situation. Surplus income is the amount of total income a bankrupt receives that exceeds the amount needed to maintain a reasonable standard of living. If the trustee concludes that you have surplus income, the trustee will set the amount you must pay into the bankruptcy estate. This amount may be adjusted during the administration of your bankruptcy if there is a change in either your total income or personal or family situation.”

Trustees are very experienced and diligent in establishing surplus income payments, but they do not have the authority to deviate from the rules and guidelines that exist. If you do not agree with the amount of surplus income set by the Trustee, you would advise the Trustee and he or she must request mediation (a process available to help two parties resolve a dispute). You might reach a settlement with the Trustee at mediation; however, if a settlement is not reached, the Trustee must set a court hearing and the matter will be decided by a registrar or judge.

If you believe that your Trustee has erred in its calculation, or over-looked an allowable deduction, surplus income mediation may be necessary - but only if the issue can’t be resolved one-on-one with the Trustee. Accordingly, surplus income mediation is rare. I have personally only been involved in one such mediation several years ago, which did not result in a mediation settlement. It was a situation where the bankrupt felt she could not “afford” the surplus income payment. At the court hearing, the Registrar agreed with the amount of surplus income that I had established and ordered her to pay it.

Personally, I empathize with anyone trying to juggle living expenses and surplus income obligations during a bankruptcy. However, as a Trustee, I have a duty to monitor a bankrupt’s surplus income obligations and take reasonable steps to ensure that it is paid.

Most individuals that I help advise me that the required surplus income payment in bankruptcy is far more affordable than the crushing creditor payments that they were trying to make prior to bankruptcy. Moreover, the surplus income payments cease upon a discharge from bankruptcy, or a court order, if applicable.

If you are having difficulty making the surplus income payments, your insolvency counselor may be able to make some budgetary suggestions aimed at helping you stay on track. It’s important that you do stay on track, because your discharge from bankruptcy will be delayed if the surplus income obligations are not met.