This is a very common question asked by people looking for debt solutions. How can you have something called surplus income when there isn’t enough income to cover all those expenses in the first place?
Briefly, surplus income is a calculation established by the government based on household income and the number of people within that household. The Licensed Insolvency Trustee must use this calculation to determine if you are required to make payments into your bankruptcy and what that amount will be. You will be required to provide proof of income on a monthly basis in order for the trustee to ensure the appropriate amount is paid.
A simple example is Joe Smith is married and his wife currently does not work. Joe takes home $3000 per month, after taxes.
The calculation would be as follows:
Total household income $3,000
Less: government standard for 2 people $2,508
Excess over the threshold $492
Surplus income rate to pay is 50% over the threshold $246
Therefore, Joe is required to pay $246 per month for 21 months, (if there are no prior bankruptcies) for a total of $5,166, providing the household income does not change within that time. If Joe’s wife starts working then the calculation would have to be adjusted accordingly.
It is important to understand these calculations if you are thinking of filing bankruptcy as sometimes the requirement to pay surplus income can be more than some households can afford to pay monthly or amount to a substantial sum to be paid into your bankruptcy. That may then lead to your bankruptcy being extended to a longer time frame in order to pay the required amount. A better solution may be to file a consumer proposal that will tailor payments to fit your household budget. A consultation with a Spergel trustee will explain this process and your options and help you to make the right choice to fit your situation.
Suzanne Dorosiewicz, Trustee in Bankruptcy
Suzanne is a Trustee in Bankruptcy with over 25 years of experience of helping people deal with their debt. She is a compassionate Trustee, happy to meet anyone who needs debt help. Suzanne works out of our head office in Toronto and can be reached at 416-498-4328.