The Bankruptcy and Insolvency Act ("BIA") requires bankrupts to submit monthly Statements of Income and Expense to their trustee for the purposes of determining if the bankrupt is required to make Surplus Income Payments to their estate.
The government has set net monthly income thresholds for a person or a family to maintain a reasonable standard of living in Canada. Every dollar that a bankrupt family makes above the level set by the government is subject to a Surplus Income payment of at least 50% while a person remains bankrupt.
Under the Surplus Income rules, the monthly Surplus Income Payment is calculated using the following formula:
Here's a simple example: John lives alone and his take home pay is $1,800 per month. Using the above formula, the monthly Surplus Income Payment that he is required to make would be:
1,875 - 1,713 = $162 x .5 = $81
The things that can affect the calculation include:
Net Income includes the take home pay of everyone living in the household of the bankrupt. If in our example John had a wife, her income would have been added to John's to determine the total household income.
Deductions include: support payments, child care payments, medical bills, fines and penalties, any other employment expense that you normally deduct when preparing your income taxes.
Threshold - set by the Office of the Superintendent of Bankruptcy. It is based on the number of persons living with the bankrupt. See the chart on the reverse page.
Payment - if more than one person's income is included in the Net Income figure, the required payment is pro-rated to each person based on their income's percentage of the total.
It is important that you understand that Surplus Income Payments are required by law. The BIA clearly sets out how to calculate the required payment and your trustee is required to report to the Court whether or not those payments have been made. If the required payments are not made, you will NOT be discharged from bankruptcy.
To avoid having problems with bankruptcy discharge, use a Surplus Income Worksheet to help you determine what your required Surplus Income Payments will be. If you have any questions on how the calculation works, or whether or not something is deductible, please contact one of our Ontario bankruptcy offices.
Our bankruptcy offices in Ontario
Contact a bankruptcy trustee
About bankruptcy trustees at Hoyes Michalos