Question: What is the criteria for extending surplus payments beyond the 9 months ? My trustee extended the payments with no real explanation . THANKS
Answer: You ask a very interesting question. First, some background. When you are bankrupt, you are required to report your income each month to your trustee. If your income exceeds a set amount, you are said to have surplus income.
Directive 11R issued by the Office of the Superintendent of Bankruptcy explains this calculation. The trustee is then required to determine if an extension to the bankruptcy is required.
Directive 12 states that if:
- the bankrupt refuses to comply with the requirement to make surplus income payments to the estate;
- the total amount paid to the estate by the bankrupt is disproportionate to the bankrupt’s indebtedness and financial resources; or
- at the time of assessment, the bankrupt could have filed a viable proposal but chose instead to file an assignment in bankruptcy,
then the trustee is required to recommend a conditional discharge, which can last up to a further 12 months.
In practice in Ontario, if the bankrupt has a small amount of surplus income, the discharge from bankruptcy will not be opposed by the trustee. However, if the bankrupt has significant surplus, then the trustee may extend the bankruptcy for a period of up to 12 months, and require the bankrupt to make additional payments, on the basis that with that level of income the bankrupt should have filed a consumer proposal.
The problem, unfortunately, is that the application of these rules are left entirely to the discretion of the trustee. There are no set standards as to when a bankruptcy should be extended, or how long the extension will last.
In the last round of bankruptcy reform, the government proposed changes to the way the surplus income rules are applied. As of today the new rules are not yet in force. Under the new rules if you are a first time bankrupt and you have surplus income you are automatically bankrupt for a minimum 21 months.
So, what does this mean today? If you have surplus income, you should meet with your trustee and ask them to explain how they did the calculation, and how long they propose as an extension to your bankruptcy. If you don’t agree with your trustee’s decision, you may request mediation, or a discharge hearing in bankruptcy court, at which time the Bankruptcy Registrar (a type of judge) will decide on the terms of your discharge. Given the length of time required to arrange the court hearing, and the unpredictability of the judge’s decision, it is usually best to work out an arrangement directly with your trustee.