Surplus Income Limits for Bankruptcy in Canada

In Canada, part of the bankruptcy process requirements may include making payments for the benefit of the creditors. The Canadian government implements payment regulations known as surplus income standards. The concept behind surplus income standards is usually complex and challenging to understand, and that's where the importance of a Licensed Insolvency Trustee comes in.

Crowe MacKay & Company's Licensed Insolvency Trustees in Vancouver and Surrey explain what surplus income is and how surplus income standards benefit those undergoing bankruptcy. If you require assistance, contact our team in Vancouver and Surrey to start your debt relief journey.

What is Surplus Income?

Surplus income is one of the components of the Canadian bankruptcy process. It considers that debtors still need to afford a standard of living. When an individual or family earns a net income over a certain magnitude, surplus income payments are required during bankruptcy. Three main principles guide the structuring of the required payments:

• The more money you make, the more you will pay during bankruptcy.

• You can keep the portion of your income that reasonably covers “normal living expenses,” which is known as the Superintendent’s Standards.

• 50% of whatever you earn over the Superintendent’s Standards is required to be paid to the trustee for the benefit of your creditors.

For surplus income, your location within Vancouver or Surrey is not a factor, as the amounts determined by the Canadian government are a national standard.

Surplus Income Limits for 2023

Below mentioned are the surplus income limits set by the government for 2023:

Family Size | Monthly Income Threshold

1 $2,543

2 $3,165

3 $3,891

4 $4,725

5 $5,359

6 $6,044

7+ $6,729

How Are the Income Limits Set?

The limits of surplus income are set using the Bankruptcy and Insolvency Act. The needed considerations when setting the limits are as follows:

• How many dependents are there in the household?

• How much does the family unit earn in a month?

• To what extent are expenses eligible to be deducted for tax purposes?

Under the Bankruptcy and Insolvency Act, your monthly income won't always be consistent. If you are sick in a month, you will make less money than usual, and if you work overtime in a month, you make more. Since your income fluctuates, your surplus income is calculated each month to represent your monthly income accurately.

The Bankruptcy and Insolvency Act also considers non-discretionary expenses. These expenses could include medical bills, spousal and child support payments, child care expenses, and income tax payments. Once the deductions against your income are removed, your trustee will use the net income amount to decide your bankruptcy payment.

How Long Will You Have to Pay Surplus Income Payments?

After your first seven months of bankruptcy (or after 21 months if it's your second bankruptcy), the trustee will review your average income. Your bankruptcy will be extended for a year if your average income exceeds $200 over the government's prescribed limit.

• First time bankruptcy lasts for minimum of nine months. However, you will be bankrupt for 21 months if you are over the earnings limit.

• Second-time bankruptcy will last for a minimum of 24 months, but you will be bankrupt for 36 months if you are over the earnings limit.

• In a third bankruptcy situation, an application to court is required for your discharge. The court will decide how long you will be bankrupt (it will be for more than three years if there are excess earnings).

For insights into debt management, read How to Manage Debt through Financial Planning?

Require Assistance?

At Crowe MacKay & Company, we have over 60 years of experience and offer free initial consultations. If you have any questions regarding the information above, contact our office today and start your debt relief journey.

This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice.

If you require corporate or personal Insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing them to live debt-free.