What is Surplus Income?
Surplus Income is perhaps a poorly worded phrase. Not many people would feel that they have surplus income, especially when dealing with debt. However, in the bankruptcy context, surplus income refers to a calculation that determines how much money per month a person should be paying into a bankruptcy for the benefit of their creditors.
When you file for a personal bankruptcy in Canada you are allowed to keep a portion of the income that you earn each month. In order to maintain a practical standard of living during the bankruptcy period, the Office of the Superintendent of Bankruptcy (OSB) sets net monthly income standards. These income standards take into account annual inflation and are derived from information released by Statistics Canada each year. Both the duration and amount you pay into your bankruptcy each month are determined by these income standards and may result in surplus income.
The new 2020 Income Standards are outlined below:
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How is Surplus Income Calculated?
For every dollar that a bankrupt household makes in take home income over their standard during the bankruptcy period, the bankrupt is subject to surplus income payments of 50% of their share if the surplus income is $200.00 or more. Under the Surplus Income Directive, the monthly surplus income is calculated by the following general formula:
Household Net income – Income Standard = Surplus x 50% = Payment
Surplus Income becomes more difficult to calculate (and understand) when there is more than one income earner in a household but only one person seeking bankruptcy protection. The non-bankrupt person has no obligation to pay into the bankruptcy and therefore their percentage of the household income is eliminated from the requirement to pay.
For more examples of how surplus income is calculated and to find out what happens when your financial situations changes during your bankruptcy, you can see the OSB’s Directive No. 11R2-2015. You can also use the Surplus Income Calculator to estimate what your payments may be.
Surplus Income Adjustments
Should you have medical condition expenses, support payments, child care expenses, court imposed fines or penalties, expenses as a condition of employment or other non-discretional expenses, your income will be adjusted each month by these amounts. The non-discretionary expenses are subtracted from your net income resulting in reduced net income and therefore reduce surplus income payments.
More importantly, take home income is averaged over the bankruptcy period. Therefore, if a person experiences a few months of unusually high income due to seasonal income or commissions from sales, they are not unduly penalized.
For more information on your specific situation and to determine how surplus income could affect you, contact our office to set up a no cost initial assessments at one of our convenient locations.