What Is Surplus Income? How Is It Calculated?

We are given guidelines by the Federal Government to assist us in determining if an individual or family has “Surplus” income. The purpose of this document is to provide a brief overview of what those guidelines are, and how surplus income is calculated in two examples.

Surplus Income Guidelines

The guideline amounts are based on net family income. Net family income means income after allowing for income taxes, other normal payroll deductions, required medical expenses, required alimony or child support and expenses related to earning income (for example, child care) but does not consider, in most cases, the actual expenses incurred by a family for rent or mortgage payments, food, utilities etc.

For self-employed individuals necessary business expenses are deducted as well.

The guideline amounts for 2010 based on the number of individuals in the family are as follows:

No. in Family Net Family Income

1                             $1,884

2                             $2,345

3                             $2,883

4                             $3,501

5                             $3,971

6                             $4,478

Example Calculations

Let us look at two examples as follows:

Example 1 – Single individual earning $2,200 net per month.

In this case the individual’s income exceeds the guideline for a family of one by $316 ($2,200 - $1,884). Individuals are normally required to pay their trustee in bankruptcy one half of any surplus income, so this individual would be required to pay $158 per month during the period of the bankruptcy.

Example 2 – Wife earns $2,500 a month, Husbands earns $1,000 per month, one child, Only Wife Filing Bankruptcy

Total Family income of $3,500 exceeds the guideline for a family of three by $617 ($3,500 - $2,883) Required Surplus payment would therefore be $309 if both individuals filing bankruptcy. As only wife is filing bankruptcy in this case required payment would be pro-rated based on her total percentage of family income.

Required payment in her bankruptcy would be $221 ($309 payment times $2,500 divided by $3,500).

Impact on the Discharge of a Bankrupt

The amount of surplus income you have to pay, if any, will affect how long your bankruptcy will last, as follows:

• 1^st time bankrupt – no surplus income obligation payable – eligible for automatic discharge at 9 months
• 1^st time bankrupt – surplus income obligation payable of $100/month or more – eligible for automatic discharge after payment of surplus for a period of 21 months.
• 2^nd time bankrupt – no surplus income obligation payable – eligible for automatic discharge at 24 months
• 2^nd time bankrupt – surplus income obligation payable of $100/month or more – eligible for automatic discharge after payment of surplus for a period of 36 months.
• In all other situations an application to Court for an order of discharge will be required.

Monthly income and expense statement are required to be filed with the Trustee during the entire time you are bankrupt, to determine if there has been a material change in circumstances. In the event there is a material change in income (either up or down) after the surplus income obligation has been determined an application for mediation will be required to amend the payment obligation.

If the individual filing bankruptcy and the trustee cannot agree on the amount to be paid there is a mediation process available, and, if necessary, application can be made to the court.

These surplus guidelines and calculations are also often used as the basis for payments that could be made by individuals considering either a Consumer Proposal or Orderly Payment of Debts.

Caution

The above examples are for illustration purposes only. The calculation of surplus income can be complicated and you should discuss your situation in detail with one of our Insolvency Professionals. For a free, no-obligation consultation to review your unique situation please contact our nearest office.