How Much Do I Pay in a Bankruptcy?
If you go bankrupt, you are required submit proof of your family income each month to your Hoyes Michalos trustee, so we can determine if you have surplus income. These bankruptcy Canada surplus income rules apply in all bankruptcies, regardless of where you live. How much you will have to pay in a bankruptcy, and how long you have to pay, is determined by these surplus income rules.
What is Surplus Income?
Surplus income is one component in the cost of bankruptcy in Canada. The Canadian government has set net monthly income thresholds for a person or a family to maintain a reasonable standard of living in Canada. This is used to determine how much you pay if you go bankrupt. 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.
Table: Income threshold by family size*:
*2018 surplus income limits set by the OSB
Calculating Surplus Income Payments
Under the surplus income rules, the monthly surplus income payment is calculated using the following formula:
Net Income – Threshold = Surplus x 50 % = Payment
Here’s a simple example: John lives alone and his take home pay is $2,752 per month. Using the above formula, the monthly surplus income payment that he is required to make would be:
$2,752 – $2,152 = $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. Please use our free surplus income calculator 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 can have a significant effect on the total cost of bankruptcy. Our free surplus income calculator can help you determine what your required surplus income payments may 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.
Payments Part of Bankruptcy Legislation
Surplus income payments are required by law. The Bankruptcy & Insolvency Act clearly sets out how to calculate the required payment and your bankruptcy 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.
Length of Bankruptcy Payments
Surplus income also affects how long you will be bankrupt. Based on rules implemented by the federal government, if your surplus income each month is greater than $200 (meaning you are paying the bankruptcy 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.
There are alternatives to bankruptcy that can help you avoid high surplus income payments. Talk to one of our bankruptcy trustees about how a consumer proposal can lower your monthly payments.