surplus income « Bankruptcy Ontario: Free Information about Bankruptcy in Ontario

Trustee Payments in Bankruptcy in Canada

Saturday, May 12th, 2012

Question: Hi there, I’m researching my options with the possibility of filing for bankruptcy. I’ve recently met with a trustee in Mississauga who is requesting 21 months worth of post dated cheques for approx $303 per month, with the first payment in cash. My income surplus is about $600 per month. I’ve read that the timing is approx 9 months so why 21 months at $303 per month with first payment in cash? I’m questioning credibility with this trustee. I’m a single mom. Please help with this question. Much appreciated.

Answer: First, you are correct to question the credibility of a trustee that asks for post dated cheques in a bankruptcy. Most trustees use pre-authorized electronic payments; it`s strange that they would make you write out 21 cheques.

Second, it would appear that the trustee has done a poor job of explaining the concept of surplus income in a bankruptcy in Canada. A first time bankruptcy in Canada lasts for a minimum of 9 months. However, if you have surplus income, your bankruptcy is extended for an additional year, for a total of 21 months. It would appear that your trustee has assumed therefore that you will be required to pay $303 per month for 21 months in surplus income payments.

However, the trustee is required to determine surplus income each month, so it is very unusual for the trustee to determine the amount in advance. A trustee is required to obtain proof of your income each month, at least for the first six or seven months, to determine how much you will be required to pay.

Here is an article that explains how surplus income is calculated, and here is a link to a surplus income bankruptcy calculator.

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Surplus income with only one person bankrupt

Monday, December 19th, 2011

Question: Does the surplus income in bankruptcy test apply at the household income level or the individual level when only one party is going bankrupt? In other words if the bankrupt party’s share of surplus household income is below $200 while the total surplus income is above $200, will the process take nine months or longer? If the second party makes an offer to creditors will this impact the answer?

Answer: Surplus income is conceptually simple: if your income, on average, is more than $200 over the limit set for your family size, your bankruptcy is extended for an additional year (from nine months to 21 months for a first time bankrupt).

If only one person in the family goes bankrupt, that person only pays their share of the penalty. So if the total family penalty is $600, but the bankrupt spouse’s income is only 10% of the total, they are only required to pay 10% of $600, which is $60. Since $60 is obviously less than $200, their bankruptcy would not be extended due to surplus income.

The surplus income calculation in a bankruptcy in Canada where only one person is bankrupt is a very complicated concept in practice, so we suggest that you arrange a no charge initial consultation with a licensed bankruptcy Ontario trustee to review the calculation in detail before you decide on bankruptcy.

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how much do you live on? – surplus income in bankruptcy in Ontario

Wednesday, October 19th, 2011

Question: with respect to the formula for family of 1/2/3/4/5, there is a number for surplus money and then 50% taken. Do you pay only the 50% amount or do you also pay the amount for the number in the family…

Answer: You are referring to surplus income in a bankruptcy in Canada. Here’s a quick explanation:

Each month you are required to report your income to the trustee. You are required to make a payment into your estate for 50% of your surplus income. For example, in 2011 a family of four is permitted to have income of $3,579. If the bankrupt is the only person in the family with any income, and if the bankrupt’s income is $4,079 per month, they are $500 over the limit, so they would be required to make a surplus income payment of half of that, or $250. Because they have surplus income, they would be bankrupt for an extra year (so a first time bankruptcy would be extended from 9 months to 21 months), and they would be paying this $250 penalty each month for 21 months.

Of course that number could change each month, as your income goes up and down.

Here’s a surplus income chart with more details.

As for your question: the answer is that you only pay the percentage based on your income.

For example, if you, the bankrupt, has income of $3,059, and your non-bankrupt spouse has income of $1,020, and you have two children so you are a family of four, here’s the math:

Your income: $3,059, which is 75% of the family total

Your non-bankrupt spouse’s income: $1,020, which is 25% of the family total of $4,079

Threshold for a family of four is $3,579, so your family is $500 over the limit of $4,079, so the penalty if your entire family was bankrupt would be $250. However, since your spouse is not bankrupt, you are only required to pay your share of the penalty. Since your income is 75% of the family income, you are required to pay 75% of the penalty, or 75% of $250 = $187.50

The math is complicated, and your percentage of family income may change each month as your spouse’s and your income goes up and down each month, so we strongly recommend you meet with your Ontario bankruptcy trustee to do the math before you decide to file bankruptcy in Ontario.

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Bank Statements During Bankruptcy

Monday, July 4th, 2011

Question: Are you required to submit bank statements and receipts for all transactions during bankruptcy?

Answer: No, you are not required to submit bank statements and receipts for all transactions unless requested by your trustee. You are required to prove your income to your trustee each month, so that your trustee can calculate your surplus income.

The more you earn, the more you are required to pay, which is why your trustee will calculate your surplus income each month based on the paystubs and other proof of income you provide. If you don’t get a paystub (perhaps because your income comes from a pension) then the trustee will request a copy of your bank statement.

In most cases your expenses don’t matter when calculating surplus income, except for certain allowable deductions, such as payments for child or spousal support, or medical expenses. If you have those expenses the trustee will require proof of payment.

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Discharge from bankruptcy and surplus income

Monday, December 20th, 2010

Question: My husband had filed bankruptcy in May 2010 and is to be discharged in January 2011. He hasn’t worked in those months but may have a good opportunity for work and don’t want to miss it. Our dilemma is, if he gets pays before the end of discharge they will prolong it for the whole 21 months and we’ll have to pay a larger sum a month. How do you deal with such an issue. It would be nice to get back on our feet and this would not help our circumstance when we are looking forward to an end with the bankruptcy.

Answer: What you are saying is only partially correct. During your bankruptcy you are required to report your income to your trustee, and if you have surplus income the bankruptcy is extended for an additional 12 months.

The trustee is required to average a minimum of the first six months of income (in the case of a first time bankrupt), and if there is surplus income, the bankruptcy is extended. So, having one large income month would not necessarily increase the bankruptcy period.

In your example the bankrupt had no income for a few months, and then started earning income, so it’s likely that the initial months with no income would counter-balance the final higher months, so conceivably there is no surplus income owing.

As this is a complicated area of bankruptcy law, you should discuss your specific situation with your trustee.

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Bankruptcy: Is it worth filing?

Tuesday, November 23rd, 2010

Question: I am 21 and owe almost $5000 to credit cards and $3000 to Fido. Is it worth filing for bankruptcy? If I file for bankruptcy, do I not receive tax refund for that year or for the whole 7 years? Thanks in advance.

Answer: The key question for you is this: will you be better or worse off if you file for bankruptcy in Ontario?

The advantage of bankruptcy is that it eliminates your credit card and cellphone debts.

The disadvantages of bankruptcy are:

You will lose your tax refund for the year of bankruptcy, and any prior years where you have not yet received your refund. So, if you were to file bankruptcy in December 2010 you would lose your 2010 tax refund. If you filed in January 2011, you would lose both your 2010 refund (since you haven’t filed that return yet), and your 2011 refund (because that’s the year of your bankruptcy).
You are required to make payments to your trustee while bankrupt. Those payments are based on your income. If your income is small, the payments are small. However, if your income increases, you could end up paying a significant amount of surplus income while bankrupt.
The note stating that you filed bankruptcy remains on your credit report for a minimum of six years after you are discharged from bankruptcy, making it more difficult to borrow in the future.

So, to answer your question, if you can pay your debts on your own in a reasonable time period, it would be better to not go bankrupt.

However, if you believe it will take you many years to deal with your debts, or you believe your wages will be garnisheed, bankruptcy may be an option. You should consult with a licensed Ontario bankruptcy trustee to help you estimate the cost of the bankruptcy, including losing your tax refund, so you can make an informed decision.

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Surplus Income Calculations and Bankruptcy in Ontario, But Should You Go Bankrupt?

Friday, November 12th, 2010

Question: I am preparing to file for personal bankrupsy in Ontario, in January, 2011. I have approx. $55,000 in unsecured debt, which includes student loans and credit cards. I have been a stay at home parent for more than 6 years, and as such, I do not have an employment income.

I married in 2008, and we have two children. Everything is in my spouse’s name. The house, vehicles…everything, and they were all purchased prior to the marriage. I have no assets, savings, life insurance..

My spouse made a little over $100,000.00 this year.

I received child support totalling $3500.

I am trying to determine what my monthly “bankrupsy” payment would be… Could someone help me?

Answer: Your best option is to contact an Ontario bankruptcy trustee, and have them walk you through the math to determine your surplus income payments in bankruptcy in Ontario. Even more importantly, you should ask the trustee to explain all of your options.

You currently have no income, and no assets. If you were to stop paying your debts, your creditors could not garnishee your wages, or seize your assets, because you don’t have any. So, for you, the first decision is to decide whether or not you need the protection from your creditors gained by going bankrupt. If you plan to be out of the work force for an extended period of time while you raise your children, one possible option for you is to do nothing.

However, if after reviewing all of your options you decide to file bankruptcy in Ontario, a trustee can explain the surplus income calculation for you. Here’s a simple example:

In 2010 a family of four is permitted to have income of $3,501 per month. If your spouse earns $5,800 per month after tax, and you receive child support of $300 per month, your family income is $6,100 per month, or approximately $2,600 over the allowable limit. If both you and your spouse were bankrupt, you would pay half of the excess, or $1,300 in surplus income payments each month.

However, your spouse is not bankrupt, so you are only required to pay your share of the penalty. In this example your income is 5% of the family total, so you would be assessed 5% of the penalty, or approximately $64 per month (because your share of the surplus income is $128 of the total).

Under current rules you are only required to make surplus income payments if your income is more than $200 over the limit, so if your income is only $128 over the limit you would not be required to make any surplus income payments.

However, this is a very simplistic explanation. We have not factored in whether or not you have previously been bankrupt, or whether or not your family income fluctuates.

So, again, to receive an accurate estimate of the potential cost of your bankruptcy, you must meet with a licensed Ontario bankruptcy trustee.

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Income and Surplus Income in Bankruptcy

Tuesday, October 12th, 2010

Question: I have applied for my CPP benefits at age 60 and will begin receiving them before my discharge from Bankruptcy. Are these funds going to be considered as income, therefore obliging me to pay more money to the Trustees?

Answer: Yes, for purposes of the surplus income calculation, all sources of income are included, including CPP benefits.

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Surplus income in family

Thursday, September 2nd, 2010

Question: The only income I make is from Child Tax Benefis for my 3 kids, I am a stay home mom with no other income, but my spouse makes about 5k a month which is more than $3971 for the family 5. There is about $1500 surplus in our income but the income is made by my spouse.
Will I be for sure entitled to pay for 50% of the surplus even my spouse isn’t the one who filed for bankrupt???
PLEASE HELP!!!!!

Answer: You should arrange a meeting with an Ontario bankruptcy trustee to estimate what you would be required to pay in a bankruptcy. You are only required to pay your portion of the family surplus income in a bankruptcy.

For example, a family of five in 2010 has a surplus income threshold of $3,971. So, for example, if you receive $471 in child tax credits, and your spouse earns $5,000 per month, your family income is $5,471, which is $1,500 over the surplus income threshold, so if both of you were bankrupt you would be required to pay half of that as your surplus income penalty, or $750 per month. However, you earn $471/$5,471 or 9% of the family income, so you would only be required to pay 9% of the penalty, or 9% x $750 = $68.

We have over-simplified this calculation for illustrative purposes, but as you can see, since your income is low, the penalty you would pay is also low.

In fact, if your only income is from child tax credits, and you are not planning to return to work in the near future, one option for you would be to not go bankrupt until you return to work, since you have no wages for creditors to garnishee.

The issues you raise are complicated, and so a no charge initial consultation with an Ontario bankruptcy trustee is essential to fully review your options.

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Bankruptcy in Ontario and student loan

Monday, August 23rd, 2010

Question: My 1st bankruptcy in Ontario was filed 7 years ago right after graduation. I couldn’t include the student loan then; however, now 7 years is up, do I have to re-file for bankruptcy to clear my student loan or can it be included on the previous bankruptcy?

Answer: Your student loan was not automatically discharged when you filed for bankruptcy because at the time you filed it was not old enough (seven years under current rules), so you cannot go back and include it. You have the following options for dealing with a student loan and bankruptcy:

First, you could simply continue to make payments on the loan.

Second, you could apply to bankruptcy court under the hardship rules and request that the bankruptcy court reduce or eliminate your student loan. You will need to demonstrate that your current financial situation makes it impossible for you to repay the loan.

Third, you could file a second bankruptcy to discharge the loan. However, you would need to consult with an Ontario bankruptcy trustee to determine if a second bankruptcy is practical in your situation.

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