What Is Surplus Income And How Is It Calculated In A Bankruptcy

When most people think of the term surplus income they think of the amount that they have available to spend after deducting their discretionary (i.e. entertainment, etc.) and non-discretionary (i.e. child support, etc.) expenses.  Pursuant to the Bankruptcy and Insolvency Act (the “BIA”), this is not surplus income rather, it is disposable income.

What is Surplus Income?

The BIAdefines surplus income as “the portion of a bankrupt’s total income (from all sources) that exceeds that which is necessary to enable the bankrupt to maintain a reasonable standard of living, having regard to the applicable Standards established by the Superintendent of Bankruptcy.  The 2015 Standard for a single person household is $2,062 per month; irrespective of whether the individual lives Toronto, Vancouver, the Yukon, or any other province or territory in Canada.  Therefore, if you are a single person household earning an after-tax income of $3,000 per month and you have never before been bankrupt in Canada or elsewhere, the surplus income payment that you will be required to pay to the bankruptcy estate for the general benefit of your creditors will be $469.00 per month for a period of 21 months.  The monthly surplus income payment is subject to increase or decrease depending on your monthly income averaged out over the period of the 21 months bankruptcy.  If however, you have been bankrupt once before in Canada or elsewhere, you will be required to make surplus income payments to the bankruptcy estate for 36 months.

Now assuming you are a single person household who has never before been bankrupt in Canada or elsewhere, what would happen if at the time of the bankruptcy you were required to make surplus income payments for a period of 21 months but following your bankruptcy you lost your job or had some other material change in income that resulted in a decrease in your income below the Standard of $2,062?  The answer: the length of your bankruptcy will change from 21 months to 9 months with no further requirement of you to make any further surplus income payments to the bankruptcy estate.

The important point to note is that although you may have been required to make surplus income payments at the time of the bankruptcy, the surplus income requirements and the length of your bankruptcy may be adjusted during the period of the bankruptcy if your income decreases below the Standard.

How is Surplus Income Calculated?

As an example, a single person household whose after-tax income is $3,000 per month and who does not have non-discretionary expenses such as child or spousal support payments, child care expenses, expenses associated with a medical condition, or expenses permitted by the Income Tax Act as a condition of employment, to name a few, would be required to make surplus income payments to the bankruptcy estate calculated as follows:

After-tax monthly income:                                                         $3,000

Less: OSB Standard for a single person household                         (2,062)

Difference (surplus income)                                                        $938     

50% of the difference is the required                                     ($938/2 = $469)      

monthly surplus income payment                                                  $469 

What If I Cannot Pay the Required Surplus Income Within the Required Time?

If you are a first-time bankrupt and cannot make the required surplus income payments before the expiry of 21 months. or 36 months for second-time bankrupt’s, but have been making consistent monthly payments to the Trustee, you may request surplus income mediation.  Surplus income mediation typically allows for an extension of time to make the required surplus income payments without the matter of the bankrupt’s discharge having to be brought before the Court.  The benefits of surplus income mediation are that: (1) you will avoid having to go to Court for your discharge; and, (2) you will be given an extension of time to make the required surplus income payments to the bankruptcy estate.  However, if you request surplus income mediation and you fail to comply with the terms of the mediation settlement agreement, the matter of your discharge from bankruptcy will be brought before the Court and the Court will make a determination on the outcome of your discharge.

What Will Happen Once I have Made All the Required Surplus Income Payments?

If you are a first-time or second-time bankrupt and there has been no objection to your discharge by any creditor, the Trustee will issue you a Certificate of Discharge  once you have made all of the required surplus income payments to the bankruptcy estate.  Your discharge from bankruptcy is basically a legal release from all your debts that you had at the time of the bankruptcy, with exception to certain debts that fall under section 178 of the BIA such as a debt or liability for alimony, support, or for student loan(s) where the date of bankruptcy occurred within 7 years after the date on which you ceased to be a full-time or part-time student.

How do I locate a Trustee?

You can find a list of licensed Trustees in your area by searching the Trustee Registry of the Office of the Superintendent of Bankruptcy website http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home.   

You may also contact the MNP office in your region to schedule a free, confidential, no-obligation consultation by visiting  www.MNPdebt.ca or calling MNP toll free at 310-DEBT (3328).

Mary Plahouras is an Estate Manager at our Toronto and Markham locations. To learn more about how MNP Debt can help you, contact our local office at 416.515.3921