Why Surplus Income Is an Important Part Of Your Debt Recovery

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You’ve filed for bankruptcy. Good to go, right? Not necessarily. In order for your debts to be discharged once you have filed for bankruptcy, you will be required to complete certain duties, which in some cases involves making surplus income payments.

What is Surplus Income?

Simply put, the amount you are required to pay in a bankruptcy is dependent upon how much you make. The government of Canada has set net monthly income thresholds for a person or family to maintain a reasonable standard of living. Every dollar you make that is above this threshold is considered surplus income and you are required to remit 50% of your surplus to your trustee. 

5 Reasons Why Surplus Income Is Important

The formula for calculating surplus income is not complicated, however there are many reasons why surplus income is something you need to consider carefully before filing for bankruptcy.

  1. The amount of your surplus income can affect the length of your bankruptcy. If you have surplus income averaging more than $200 per month, your bankruptcy will be extended for 12 months.
  2. It is important to note that surplus income payments are required by law, as outlined by the Bankruptcy and Insolvency Act (BIA). Failure to report your income or make your required payments while bankrupt means that your debts will not be discharged.
  3. All sources of income, whether taxable or not, are included in the surplus income calculation.  This includes your net pay, but also includes child tax credits, child support, and pension income. Any of these amounts can increase your average monthly income resulting in your having to pay surplus income.
  4. If you experience a month where you receive three bi-weekly paycheques, instead of the normal two, this could be sufficient to trigger a surplus income payment.
  5. If you think your income will increase during your bankruptcy, or you expect to receive a bonus, this may cause a surplus income payment, increasing the cost of your bankruptcy.

For these, and many other reasons, it is important that you discuss surplus income with your trustee prior to filing bankruptcy. Depending upon what your surplus income payments may be, you may want to consider a consumer proposal as an alternative.

Do you have more questions about surplus income? Try our Surplus Income Calculator to learn how you can calculate your monthly surplus income payment. Do you require more assistance than this? Contact Hoyes Michalos today and get the best debt management advice available!