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When you file for bankruptcy in Canada, you’ll certainly lose many of your assets or at least some equity in them. How much of your valuable assets you’re allowed to keep will vary based on the province that you live in.
Before you file for bankruptcy, consider all other options.
However, you should be able to keep the income that you bring in each month, as long as it falls under a certain limit. If you make more than that specified limit, you’re considered to be making a “surplus income,” a portion of which will need to be contributed to your bankruptcy estate. These funds will then be appropriately distributed to your creditors that are still owed money from you.
For an explanation of personal bankruptcy, check out our helpful video.
What Exactly is Surplus Income?
The rules surrounding bankruptcy in Canada are set in place so that all parties involved in the process are treated fairly, including both consumers filing for bankruptcy and the creditors they still owe money to. “Surplus income” was introduced as a means of treating creditors fairly and providing them with as much as their owed money as possible.
Basically, the federal government established income levels for consumers when it comes to bankruptcy. Should the income exceed the limit set by the government, additional payments will need to be made to the Licensed Insolvency Trustee involved in managing the bankruptcy on the part of the consumer.
Want to know if the federal government provides debt relief? Click here for the answer.
Net monthly income thresholds for consumers or households have been established to uphold a reasonable standard of living. Anything above that amount is deemed surplus income. All monies that a consumer who has filed for bankruptcy makes above the set limit are subject to surplus income payments while the individual remains bankrupt.
Surplus income also impacts the length of time that you will be bankrupt. If your monthly surplus income exceeds a certain amount, your bankruptcy will automatically be extended.
Read this for some information about Canada’s Bankruptcy and Insolvency Act.
What Are the Surplus Limits For 2018?
Every year, surplus limits are adjusted. This year, the surplus limits for bankruptcy are as follows:
|Family Size||Surplus Income Limit|
Based on these figures, you can calculate how much you would have to contribute to your bankruptcy estate.
How is Surplus Income Calculated?
As a consumer filing for bankruptcy, you have certain obligations to meet, including submitting proof of income to your trustee every month. You are also obligated to submit proof of allowable expenses, such as medical expenses or childcare fees. These will be subtracted from your regular income to come up with your surplus income. Any amount that goes above the threshold is deemed surplus income.
Can you file for bankruptcy online? Find out here.
Allowable expenses are taken into consideration to make sure every bankrupt consumer is still able to sustain a certain lifestyle despite their expenses. For example, someone who makes a yearly income of $80,000 should pay more compared to someone who only makes a $30,000 income. Similarly, someone who has children should be able to keep a larger portion of their income, compared to a single person with no children, to cover the expenses associated with child care.
Living in British Columbia, read this to learn about the province’s bankruptcy process.
Any amount of money that a bankrupt household makes over and above the limit established by the government must be charged a 50% surplus income payment fee during bankruptcy.
The following is an illustration of how surplus income is calculated.
Let’s say a family of 4 brings in a total monthly income of $5,000. Based on the 2018 surplus income limit of $3,998 for this household size, the surplus income subject to the 50% fee would be $1,002 ($5,000 – $3,998). That means half of $1,002 ($501) would have to be given to the trustee every month.
If you’re an Ontario resident and you’d like to know more about the bankruptcy process, read this.
How Long Will You Be Subject to Surplus Income Charges?
For first-time bankruptcies, trustees will average out your income after seven months. Your bankruptcy will be extended to 21 months from the initial 9 months if your surplus income goes over $200 every month on average. If your average monthly surplus income comes to less than $200, you may qualify to be discharged at the 9-month mark, as long as all of your bankruptcy obligations and responsibilities have been met.
If you’d like to learn about bankruptcy discharge and what it means, click here.
If you’ve been bankrupt before, the rules surrounding your surplus income will be different. In addition, your surplus income calculation will be more complicated if you’re married and your partner brings in an income but has not filed for bankruptcy. In these cases, it’s suggested that you get in touch with a licensed insolvency trustee for more specialized information on surplus income calculations.
Want to know if filing for bankruptcy will affect your spouse? Look here.
Your bankruptcy will linger for a longer amount of time if you continually make more than your limit. Anyone who anticipates a salary well above these limits might be better off choosing a consumer proposal rather than bankruptcy in this case. Regardless, it’s important to speak with an experienced insolvency trustee to find out which option is best for you and what types of surplus income payments you’ll be expected to make.
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