What Is Surplus Income In Bankruptcy?
Surplus income is any income that you make each month that is over a limit set by the government for you and your dependant’s basic necessities for living.
If you are considering bankruptcy it is important that you understand this concept because the requirement to pay surplus income in your bankruptcy case could drastically increase the cost of your bankruptcy and also extend the time in which you will be bankrupt.
The government has set a list of income levels for families based on the number of members in the family; the larger your family, the more you are allowed to make before surplus income payments become required.
If, however, your household income exceeds the level set by the government you will be required to pay a portion of your surplus income to your trustee.
In addition to making additional payments, the length of your bankruptcy will also be extended by 12 months if you have surplus income requirements.
Directive 11R2 from the Office of the Superintendent of Bankruptcy covers instructions on surplus income. The government’s instructions regarding surplus income can be found in Directive 11R2 from the Office of the Superintendent of Bankruptcy.
How Are Surplus Income Payments Calculated?
To understand surplus income payments further it will help to look at an example.
Bob is a single man living alone who works 40 hours a week making $20 an hour. He brings home $3,200 each month and his income never fluctuates.
When Bob meets with his trustee and brings his pay stubs the trustee will help Bob work through the surplus income calculation:
Take Home Pay of $3,200
The Government Limit for Individuals Living alone without any dependants is $2,089
This means Bob’s income is $1,111 over the limit for surplus income payment requirements, so Bob will be required to make surplus income payments.
When making a surplus income payment the debtor (Bob) must pay 50% of their surplus income to the trustee.
The trustee explains to Bob he will have to make surplus income payments of $555.50 each month for 21 months because Bob is filing for bankruptcy for the first time.
Bob’s total surplus income payments would be $11,665.50. As long as Bob’s income and family size remain the same he will get an automatic bankruptcy discharge after the 21 month period, provided he paid the required payments, completed all his bankruptcy duties, and there are no objections to his discharge.
When you are in bankruptcy you will be required (as part of the necessary bankruptcy duties you must complete in order to receive your discharge) to provide the trustee with a statement listing all of your income and expenses and how the money was used; the trustee will use this report to determine if any surplus income is owed, or if surplus income payments should be increased or reduced.
How Will Income That Fluctuates Impact My Surplus Income Payments?
If you have income that fluctuates each month or you are paid bi-weekly, which results in an additional paycheque some months the surplus income calculation can be a little more challenging.
If Bob’s income fluctuates the trustee will take the total amount of required surplus income payments and divide it by the number of months.
Before making any decisions about going bankrupt it is important that you have a clear understanding of surplus income payments if you are required to make them as they can increase the cost of your bankruptcy, as well as the time you will be bankrupt. Directive 11R2 and a Licensed Insolvency Trustee can help you have a complete understanding of how your surplus income calculations are determined and how surplus income will impact your bankruptcy case.