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

Before Discharge of Personal Bankruptcy

Sunday, August 16th, 2009

Question: I am going through Personal Bankruptcy right now – filed on March 17th 2009. I am meeting all my terms monthly statements and monthly payments one credit counselling meeting complete the second meeting booked for the end of September. I am not working my friend is assisting me with my commitments.

I worked for Bell Canada have a federal regulated Locked-In Pension and I receive approximately $10k from in January each year – I am 51 years old..the Trustee has decided to extend my 9 months to 10 to take the $10K that I receive in January 2010 for the creditors. I totally agree with this…I really don’t owe that much well under $50K…This is my question…I am not working and can apply for Financial hardship and take out a bit of cash from my Locked-In account – max $21k then taxes off that..if I do that can they take that money as well..I just need some money to live on… is there a limit..I would still be well under poverty…if you could help me clear my mind on this that would be wonderful…many thanks…

Answer: This is something you should discuss with your trustee, since without your exact numbers it is impossible to give you a clear answer.

In general, you are required to pay a portion of your income each month over a threshold set by the government. It’s called surplus income. It would not make sense for you to take $21,000 out of your LIRA all at the same time, because you would be required to pay a significant portion of it to the trustee.

If you need money to live, you should only take out a small amount at a time, or wait until the bankruptcy is over to take it out, to minimize the amount of surplus income you have.

In fact, if you are receiving your pension payment in January the trustee should not be taking all of it; they should only be taking the portion that relates to surplus income. You should discuss this with your trustee.

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surplus payments in bankruptcy in Ontario

Monday, August 3rd, 2009

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.

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how much can one make and still declare bankruptcy?

Wednesday, June 10th, 2009

Question: I just found out that my fiancee has around $35,000 in debt, including credit card, unpaid personal bill, line a credit (paying interest only) as well as being overdrawn. We live together in my home and share utility bills, food, line of credit (in my name with joint items). He has been paying for about 1/3 of our bills but because he’s so strapped (with personal debt) he can’t pay his. He makes $60,000 a year, has a vehicle valued at $1,800 – does he make too much to declare bankruptcy and if he can – can he get out of his debt but still help with our joint bills ???

Answer: If you file bankruptcy in Ontario, the amount you are required to pay while bankrupt is based on your net family income. Assuming your fiancee is currently a single person with no children, he is allowed to earn $1,870 per month (take home pay). He then would pay half of the first thousand he is over that amount, and three quarters of the rest. This is called surplus income. For example, $60,000 per year may be around a net after taxes of $3,750 per month, so the surplus owing would be $3,750 – $1,870 = $1,880, so 50% of $1,000 and 75% of $880 = $1,160 per month. (Here’s a surplus income spreadsheet you can use to do the math).

If he is paying $1,160 per month in a bankruptcy, it is likely the bankruptcy would last for up to 21 months (instead of the usual 9), so for him a consumer proposal is probably a better option.

Either way, yes, if he files a bankruptcy or a proposal he will then be able to devote the rest of his income to helping with your living expenses.

Obviously the math is somewhat complicated, and it’s a difficult decision, so we recommend that you meet with a licensed Ontario bankruptcy and proposal professional to review all of your options before making a decision.

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how to calculate surplus income, and will bankruptcy be extended

Tuesday, May 19th, 2009

Question: I filed for bankruptcy in feb 2009. I might be offered a job in the near future for 10 months. The job will be full time and i would be making 25 dollars an hour. I am supposed to be discharged in the Nov 2009. How is the job going to affect me. Will the bankruptcy period be extended even though the duration for the job is only 10 months or maybe even less than that. Also what surplus income would i be owing the creditors ( i have declared a 2 person family when filing)…..thanks in advance;)

Answer: Here’s an article that explains in detail how to calculate surplus income. In simple terms, each month you send the trustee proof of your income (paystubs) and allowable deductions (child care receipts, medical expenses, etc.) and the trustee compares your next income to the allowable limit for your family size. If you are over the limit, you pay half of first $1,000 you are over, and 75% of the remainder.

If you have significant surplus income, it is possible that a bankruptcy will be extended longer than the minimum nine month period. Your trustee will determine whether or not an extension is warranted. In your case you have already been bankrupt for four months, and your new job perhaps won’t start until month five or six of your bankruptcy, so given the short period of time you are earning the extra income, and the temporary nature of the job, it is possible that your bankruptcy will not be extended.

However, we suggest you discuss this with your trustee immediately, so that you are prepared for whatever will happen.

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anxious about discharge and surplus income

Saturday, April 25th, 2009

Question: My calculations are that over the 9 month period my surplus would be 870 dollars. To clarify, that is 870 beyond the 1620 (9months X 180), a total of 2490 paid. Do you think they would keep me in bankruptcy for another 12 months based on that small amount? If so I’m tempted to work a little less, but that seems a little shady almost.

Answer: As a general rule, if your surplus income payments average less than $100 per month, as yours do, it is doubtful that your bankruptcy would be extended beyond the normal first-time bankruptcy minimum period of nine months. It is your decision whether or not you work less while bankrupt. Your trustee can provide you with further information.

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Surplus income, proposal, and bankruptcy discharge

Wednesday, April 22nd, 2009

Question: If a couple files for bankruptcy after a failed consumer proposal due to loss of income are they penalized by an extended discharge if employment is found during bankruptcy because of a higher surplus income. If so would this not be penalizing for finding employment and defeat any initiative to seek employment?

Answer: Good question. Surplus income payments are not designed to be a “penalty”. The theory is that the more you make, the more you should be able to contribute to your creditors. However, you are correct. If, during your bankruptcy your income increases dramatically, it is possible that your bankruptcy will last longer than the minimum nine months.

However, if that did happen, you could discuss it with your trustee, and you could also request a discharge hearing in bankruptcy court and explain the circumstances to the bankruptcy judge, who may be lenient given the circumstances (ie. they probably would not punish you for working hard).

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self employed and bankruptcy in Ontario

Wednesday, April 22nd, 2009

Question: I am a self employed carpenter I have tools, truck etc. and allot of debt that i have not been able to maintain. If I go bankrupt, how is my income viewed vis a vis surplus income regarding income before/after expenses.

Answer: Surplus income payments are calculated based on your net income, or your income after expenses. Thus if you had revenue of $4,000 in a month, but you had $1,000 worth of business expenses, your surplus income would be calculated based on $3,000 per month. Your bankruptcy trustee can explain this in more detail, and can give you some example surplus income calculations before you file so that you understand exactly how much you are likely to be required to pay for surplus income while bankrupt.

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SURPLUS INCOME AND TRUSTEE FEES

Tuesday, April 21st, 2009

Question: DOES THE TRUSTEE GET HIS/HER FEES FROM THE SURPLUS I WOULD PAY (AS REQUIRED BY THE DIRECTIVE) OR WOULD I PAY THE TRUSTEE’S FEE OUT OF MY SURPLUS PORTION.

TOTAL AMOUNT OF SURPLUS CASH PER MONTHS FOR ME WOULD BE $350.00. MY 50% WOULD BE $175.00. AND $175.00 TO THE TRUSTEE.

THANK YOU FOR YOU HELP.

Answer: The trustee is paid a “tariff”, which is a fancy word meaning that the trustee is paid a portion of the funds available in the bankruptcy estate at the end of the bankruptcy. This fee is set by the government; all trustees receive the same amount.

Most bankruptcy trustees in Ontario will require you to make a minimum contribution to your estate each month (usually in the range of $160 to $200 per month); in addition, you are also required to make surplus income payments based on your income. All of that money is combined, and at the end of the bankruptcy the trustee receives their fee from those amounts, and pays certain expenses, and the rest of the money is paid to the creditors.

Tags: trustee fees
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loss of job after filing bankruptcy in Ontario and surplus income

Tuesday, April 21st, 2009

Question: If you file for bankruptcy and before you get discharge (within the 9 months) you lose your job, then what? what happens to the case? what about the income surplus income payments?

Answer: If you lose your job, the bankruptcy still continues. Surplus income payments are payments you make if your income goes about a certain threshold. You send copies of your paystubs to the trustee each month, and they recompute that amount you must pay each month. Therefore, if you lose your job, your income disappears, so you would also not be required to make surplus income payments while unemployed.

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surplus income and length of bankruptcy in Ontario

Monday, April 20th, 2009

Question: Hi, I read through the recent posts on surplus income and wanted to know in Ontario, if one has significant surplus income, how long beyond the 9 months will the bankruptcy be extended? Is there a general rule of thumb as to how many months it will be extended? Can a bankrupt mediate an agreement with a trustee or challenge the extension in court?

Answer: There is no general rule of thumb. If the surplus is a few hundred dollars per month the trustee and the bankrupt may agree to a “deemed opposition” where the bankruptcy is extended for a few months. If the surplus is significant the court can extend the bankruptcy for a further 12 months or more.

The bankrupt can request mediation to discuss the issue, and the bankrupt does have the right to appear at a discharge hearing in court to present their case before the judge.

If you expect to have significant surplus income, a better alternative is to file a consumer proposal and avoid the bankruptcy altogether.

It should also be noted that under proposed new rules if you have surplus income your bankruptcy will be automatically extended to a minimum of 21 months, so a consumer proposal may be an even more important bankruptcy alternative in the future.

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