Bankruptcy: what is surplus income and how is it calculated?

When you file for bankruptcy, your surplus income is one of the deciding factors in the length of your minimum term as well as the amount of your monthly payment. So what is surplus income and how is it calculated?

Surplus income is not the money you have left over at the end of the month after paying your bills. Your income as compared to a set threshold amount – determined by Industry Canada, a division of the federal government – determines what your surplus income is.  This threshold amount is based on how many people you have in your household.

This guide creates a method for determining when a debtor should pay more and how much should be contributed into the estate for the creditors.

As you can see in the 2014 guidelines below, the amount of surplus income increases with the number of people in the household. So the amount for a household of one is set at $2,014, while a household of two people is set at $2,508 and so on.

Example:

Someone who is single with income of $2,414 will have the following surplus income:

The surplus income totals $400 and the bankrupt would be required to contribute half of that — $200 — as his payment into the estate. For more details on the particulars of surplus income and example calculations, you can look at the Directives set out on the Industry Canada website here.

Your Trustee will work with you to determine the most reasonable estimate of your average income for the period of the bankruptcy and will determine your surplus income based on that. Your actual payments due into the estate will be based on your reported income during the term of the bankruptcy.

Take the time to understand this as it is an important factor in receiving your discharge from bankruptcy.  For more information give me a call.