Surplus Income Payments: How much do I have to pay in a bankruptcy in Ontario?

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 50% while a person remains bankrupt.

Calculating Surplus Income Payments

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 $2,526 per month. Using the above formula, the monthly Surplus Income Payment that he is required to make would be:

$2,526 - $1,926 = $600 x .5 = $300

In this example John is required to pay $300 in surplus income payments each month that he is bankrupt. Each month John will submit his paystubs, and each month this number is re-calculated. If John's pay increases, he will pay more. If his pay decreases, he will pay less.

The amount of surplus income you are required to pay is based on the following:

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 Surplus Income Worksheet for more details.

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.

Surplus Income Payments are required by law. The Bankruptcy & Insolvency Act 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.

NOTE: Under new rules implemented by the federal government on September 18, 2009, if your surplus income each month is greater than $200 (meaning you are paying the trustee more than $100 per month in surplus income payments), your bankruptcy is automatically extended. A first bankruptcy is automatically extended for 12 months, and you are required to continue paying your surplus income payment for an additional 12 months. A second bankruptcy with surplus income is extended to a total of 36 months. Full details can be found in our length of bankruptcy article.

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.

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