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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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SURPLUS INCOME

Wednesday, April 15th, 2009

Question: What determines a trustee’s intention to extend bankruptcy due to “significant surplus income”

What is considered as significant income and if any surplus over $1000 requires an additional premium of .75 of each dollar over $1000 why would a bankruptcy be extended if a premium is already being paid for “significant surplus”.

Answer: You ask an excellent question, for which there is no clear answer.

Directive 11R from the Office of the Superintendent of Bankruptcy explains the calculation of surplus income. However, the Directive does not specify the time period required.

In the Ontario courts surplus income payments each month during bankruptcy of over $400 to $500 per month may be considered “significant” in some cases, and the court may therefore add additional months, and payments, to the bankruptcy. However the court will take into consideration the recommendation of the trustee, the creditors, and the situation of the bankrupt.

If you believe you are likely to have significant surplus while bankrupt it is often recommended that instead of filing bankruptcy you file a consumer proposal so that you can fix the amount of your monthly payments, and negotiate a settlement with your creditors and avoid bankruptcy.

Finally, the federal government has proposed new rules that would automatically extend a bankruptcy to a minimum of 21 months if the bankrupt has surplus income. As of today’s date (April 15, 2009) these rules have not yet come into force. More details are available about new bankruptcy laws in Canada. Your trustee can provide you with further details.

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Question about expenses and surplus income

Monday, April 13th, 2009

Question: My sister in-law is about to claim bankruptcy. She has no real option. I have determioned what her montly surplus income payments will be, and everything appears to be in order – she is currently working with a trustee to do all of the necessary steps.

However she will be coming to live with myslef and my wife and intends to give us some money to help offset additional expenses in our household. Is this considered rent? Does this “rent” affect her surplus income payment at all? I’d rather not have to take rental money from her, mainly b/c she has enough issues with money, but also because me receiving ‘rent’ would bump me into a higher tax bracket (no thanks). If she declares that she is not paying rent, will this affect her ‘surplus income?’

Thanks.

Answer: The amount a bankrupt is required to pay during their bankruptcy on account of surplus income is based on their income, less what they pay for child and spousal support, medical expenses, and court imposed fines. The amount of rent paid does not impact on the calculation. Therefore if she lives with you rent free, it will not impact on her surplus income payment.

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What determines if ones bankruptcy should be extend beyond 9 months

Monday, April 6th, 2009

Question: Just curious about surplus income payments and ones discharge date. Currently it states an automatic discharge at 9 mths if you complete all that is required. Hence, even if you make your surplus payments what would determine if they decide to extend your bankruptcy beyond the automatic 9 months?

Answer: It is possible that a bankruptcy can be extended past nine months, even if you complete all of your duties.

First, if you were previously bankrupt, you are not eligible for an automatic discharge after nine months.

Second, if you had significant surplus income during your bankruptcy, it is possible that one of your creditors may object to your discharge, on the basis that you had sufficient income to file a consumer proposal as an alternative to bankruptcy.

You should discuss your expected income with your trustee before filing bankruptcy, so that you can understand the chances that your bankruptcy will be extended due to surplus income.

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Surplus Income Assessment

Friday, March 27th, 2009

Question: I declared bankruptcy, was assessed, and given 9 months of payments at $170.00. I lost my job and found a new one during that period and sent all of the info to my trustee. Turns out, she had left the company, and didn’t forward any of my info on, so at the end of the 9 months – I was behind in my payments – I was re-assessed. They decided that I owed an additional $11,000+ in surplus, and I now have over 21 months of payments to make!!!!!!! The largest chunk of my debt was a personal loan – that I will need to re-pay once I’m discharged – and the person has not filed any paperwork to be able to recoup any of the funds. (I’ve asked for this person to be removed, and was told no) If I take that amount out, add in the $3000 tax return they received along with the $11k in payments, I am paying back as much, if not more, than I originally declared! Something seems off to me, can anyone help?????

Answer: It does appear that your situation was not handled in a professional manner. You have three choices:

First, you should request a meeting with the senior trustee at the firm you are dealing with to see if they can sort out the problems.

Second, you could request a discharge hearing in court, which will probably happen anyway, and explain your situation to the bankruptcy judge.

Third, you can contact the Office of the Superintendent of Bankruptcy (they monitor all trustees) and they can investigate on your behalf.

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SURPLUS INCOME & DISCHARGE

Wednesday, March 18th, 2009

Question: What is the common length of time under CURRENT laws that a person waits for discharge with surplus income? Is there a ladder scale based on the amount of surplus a person has and if so is a person with over $1000 surplus already paying a premium with .75 for anything over $1000 making any further extension compared to anyone else with surplus unfair.

Answer: Currently there are no set standards, which is why the proposed new bankruptcy laws will mandate that a person with surplus income is bankruptcy for a minimum of 21 months. Under current rules if a discharge hearing is called, the court decides on the appropriate length of the bankruptcy.

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Who is included in the number of persons in a household to calculate the threshhold amount?

Wednesday, March 11th, 2009

Question: I am trying to help a friend manage through the bankruptcy process. Her threshold income (for surplus income purposes) amount seems to have been set at the level for 2 people ($2300 or so) but she is supporting a daughter in university too. Shouldn’t she be included too?

Perhaps now that my friend is in bankruptcy, her daughter’s student loan entitlement will go up…? Actually, her daughter’s university costs contributed to putting my friend in this spot – she worked multiple jobs to help fund university – which raised her income so her daughter wasn’t eligible for much in the way of student loans; because the daughter didn’t get enough student loans, my friend had to work more; which further reduced the student loan eligibility – and so on into a downward spiral! Now that my friend has fallen into bankruptcy, it would seem that there’s still this problem because the threshold seems to be excluding helping her daughter. It looks like her daughter may have to drop out – which would be a tragedy for them all. So – is it right that her daughter in university doesn’t count in the threshold amount even though my friend has to pay for her rent, food, clothing and other expenses?

Answer: The surplus income threshold is based on the “family unit”. In most cases a child attending university, who is supported by the family, remains a part of the family unit, and therefore yes, she probably should be included.

We suggest your friend raise this issue with the bankruptcy trustee (who may not even be aware of the daughter at university). If the trustee does not agree with this approach, the bankrupt has the right to request mediation as a starting point to resolving the matter.

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Are Child Support payments recieved calculated as part of monthly income?

Saturday, January 24th, 2009

Question: I pay child support and special expense amounts to my ex. Is the amount of child support moneys she receives included in the calculation of her monthly income to determine payment to her trustee?

Answer: Yes. If you are bankrupt in Ontario, you are required to report your income every month to your trustee. If your income exceeds a certain amount, you are required to pay a portion of your surplus income into your estate for the benefit of your creditors.

Income includes all income from every source. It may be income from employment, from a pension, from social assistance, or from child support. All forms of income are included, whether or not they are taxable. Your trustee can provide you with more information.

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Divorce and Bankruptcy

Tuesday, December 16th, 2008

Questions: I am recently divorced with children. I have given my wife the house and healthy support payments so that my children can live comfortably and without too much disruption to their lives. My wife was stay at home before so I transferred debts to my name in the form of unsecured lines of credit. I have a good income and a good company pension but my employer has recently refused to pay me a substantial amount of money which I earned through a contract with them. This missing money has left me in a serious shortfall. I am considering personal bankruptcy to shed the dept load. My questions are: Will the courts demand a big chunk of my good income and will this impact my support payments or are the support payments protected? What happens to my company pension?

Answers: There are a number of complexities in your situation, so you should consult a bankruptcy trustee to review your unique situation.

In general, a company pension is not impacted by a bankruptcy.

As for your income, while you are bankrupt you are required to make a contribution to your bankruptcy estate based on your income. It’s called a surplus income payment, and the more you earn, the more you pay while bankrupt. However, the child support you pay is considered a reduction in your net income, so your child support payments reduce your surplus income in a bankruptcy.

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Surplus income payments in Bankruptcy

Saturday, December 13th, 2008

Question: If I can not make the full surplus income payments in my bankruptcy each month, what happens? Will my discharge be delayed? How long will I be given to catch up? Will a trustee garnish my wages for the missed payments?

Answer: Yes, if you are not able to pay the full amount of your surplus income payments each month, it is possible that your discharge will be delayed, and the trustee does have the power to garnishee your wages.

If you are behind in your payments, or believe you may fall behind, it is essential that you arrange a meeting with your trustee and discuss your situation. It is usually possible to work out a repayment plan. The trustee may be able to extend the bankruptcy to give you time to make the required payments, but the sooner you make those arrangements the sooner your bankruptcy will be able to be completed.

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