Doug Hoyes and Ted Michalos explain what is meant by surplus income payments in personal bankruptcy in Canada.
NOTE: The surplus income limits are updated annually by the government. Here is where you can find the most recent surplus income limits.
More information about how surplus income is calculated can be found in our article here. You can also get an estimate of what your surplus income payments might be by trying our surplus income calculator.
Dave: We have a caller calling in – strangely enough. We’re going to talk to Richard. Hi Richard, you’re on 570 news.
Richard: Good afternoon. How are you?
Dave: Doing well. Richard, what’s your question for Doug and Ted today?
Richard: Well, my question is, is that after five years of procrastination, which a lot of people do regarding their debts, I went right to a Trustee and took advantage of my free consultation. I’m at a point where bankruptcy is inevitable. But I was just a little bit confused about the 9 months or the 21 months to when I’m going to be discharged and the surplus income as to how much I can make that can shoot me up into being discharged into 21 months because I’m in that category where I roughly make, you know, $2000 a month and whatnot, but it can fluctuate. So I’m just wanting to get some facts on that.
Ted: So Richard, I’m going to give you some hopefully quick information and then if it’s not sufficient, depending on whether or not Dave wants us to tie up the show, there are people in our offices today that will give you more detail if you want to call if my answer isn’t long enough for you. How’s that?
Richard: Excellent. Yeah.
Ted: All right. So what the government did a couple years ago is they decided that for individuals earning more than a basic minimum amount, bankruptcy would run 21 months. For individuals earning less than that amount, it would run for nine. So how many people in your family?
Richard: Just me.
Ted: All right. So as a single person the government has decided that you can live on $1926 in take home pay a month.
Update: The government surplus income limits update annually. The most recent surplus income limits can be found here.
Ted: And so for the first six months of your bankruptcy you’re required to submit income statements. Basically your paychecks showing your Trustee how much money you made.
Ted: In month seven your trustee is going to average those first six months and if your average income is over $2126 – so $200 higher than that number I said before, then suddenly your bankruptcy goes to 21 months because the government has decided you’re earning too much and you start paying additional amounts.
Ted: So it’s called surplus income. It’s Directive 11R2 and it confuses the hell out of just – can I say that? I just did. That should be consistent with what your Trustee told you.
Richard: Well, he quoted me at a $100 more than the $1926.
Ted: No. So the way the law works is, the 1926 is what you’re allowed and if, when we do the average, it’s $200 higher than that, then your penalty is $100.
Richard: Oh, I see. Okay. Got it.
Ted: So it’s half of every dollar that you go over the guideline.
Richard: Oh, I understand that. Is it also a roughly the same price from Trustee to Trustee? Like he quoted me about $1800 like for – to write up a bankruptcy.
Ted: What you’ll find is that most Trustees – ourselves included – will tell you that the basic cost of file is around $1800. So he probably asked you for $200 a month or $80 up front and $180 – something like that.
Richard: Yeah, yeah, yeah.
Ted: And that’s so we can keep the lights on.
Richard: Yeah. I just – like I haven’t officially went in to now to do anything, but I just wanted to get more facts and information, you know, because I’ve only taken five years. So I wanted to make it thorough.
Ted: You are not alone and quite frankly this is the most complicated thing about bankruptcy law is how does a Trustee figure out how much you’re supposed to pay and for how long.
Ted: It’s become one of the reasons that people file proposals. I know we’re beating a dead horse here, but what Doug was saying earlier, for the guys that are earning more than that and they know their bankruptcy is going to be longer, they’re afraid of this calculation and they don’t want to suddenly find out that they owe their Trustee $500 a month and it drives people crazy.
Douglas: And yours is kind of the typical situation. You get paid every two weeks so there’s some months where you get a third paycheck, but I might get overtime. I might get a bonus. And it’s that third paycheck or that overtime or the bonus that throws you over that average that Ted talked about – which is why in a lot of cases it’s better to say, “Okay, fine. I’ll just do a proposal. Then I don’t have to worry about whether it’s going to be 9 or 21 months. But that’s why you want to do the detailed math before you decide whether it’s a bankruptcy or a proposal.
Ted: But you know what you got to assume, Richard? You got to assume – if you’re close to that guideline – that it’s going to be the 21 months and then at least if it turns out it’s only nine, this is great. I got done early. As opposed to, you know, maybe I’ll keep it under that number and then you get the bad news in Month 7. You’ll just want to shoot yourself.
Richard: Oh, I hear you. I hear you. Yeah. All right. Well, thank you for your time.
Ted: Your welcome. Good luck with it.
Dave: Richard, thank you so much for your call today. It’s definitely something that’s probably on a lot of people’s minds.