Surplus Income Our Step-by-Step Guide to Determining Surplus Income

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The Formula for Surplus Income

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The Rules of Surplus Income Calculating your Surplus Income

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What is Surplus Income? The government has set net monthly income thresholds for a person or family to maintain a reasonable standard of living in Canada. Every dollar that a bankrupt family makes above this level is called surplus income, and the bankrupt is required to pay 50% of this surplus income while they are bankrupt. If a bankrupt has surplus income averaging more than \$200 per month, their bankruptcy will be extended for 12 months.

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The Formula for Surplus Income The following formula is used to determine the monthly surplus payment that a bankrupt is required to pay, under surplus income rules:

NET INCOME includes all income, after deductions, of everyone living in the household of the bankrupt, net of certain allowable deductions

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The Formula for Surplus Income Net Income is defined as a personâ&#x20AC;&#x2122;s GROSS PAY minus taxes, CPP & EI. Any voluntary payments (eg RRSP contributions) are added back. Certain expenses are then deducted from your NET INCOME before the surplus calculation. Deductions include: support payments, child care payments, medical bills, fines and penalties, any other employment expenses that you normally deduct when preparing your income taxes.

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The Formula for Surplus Income The threshold is set by the Office of the Superintendent of Bankruptcy and is updated every year. It is based on the number of persons living with the bankrupt. Number of persons

Threshold 2013

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\$2,006

\$2,497

\$3,070

\$3,728

\$4,228

\$4,768

\$5,309

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The Rules of Surplus Income Surplus Income Payments are required by law: • The Bankruptcy and Insolvency Act clearly sets out how to calculate the required payment. • 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. • If your average surplus income is greater than \$200 per month, your bankruptcy will be extended for an additional year.

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Calculating Your Surplus Income What are your sources of income? Personal take home pay per month (ADD BACK voluntary deductions such as RRSPs and RESPs) + Spouses take home pay per month (ADD BACK voluntary deductions) + Child tax benefit + Social Assistance + Pension income + Other income

= SUBTOTAL A

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Calculating Your Surplus Income What are the deductions from your income? Support payments + Child care expenses + Medical expenses + Court fines + Other income

= SUBTOTAL B

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Calculating Your Surplus Income SUBTOTAL A - SUBTOTAL B = Net Income Once you determine your monthly net income, subtract the threshold. The remaining number is your surplus income. 50% of your surplus income is the total surplus payment required per month. Example:

NET INCOME â&#x20AC;&#x201C; THRESHOLD = SURPLUS X 50% = PAYMENT

\$2,606

-

\$2,006

=

\$600 X .5 = \$300

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Some Important Considerations • If you receive a bonus or earn more income, your surplus income will go up, increasing the cost of your bankruptcy. • If you are filing jointly with your spouse, your payments are shared pro-rata based on your income. • Allowable deductions and what is deemed income can be complicated.

If you are considering filing bankruptcy, you should estimate your surplus income before you file and talk to your trustee about your options. If you think you will have a large surplus income payment, you may want to consider a consumer proposal as an alternative.

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