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Surplus Income Limits for Bankruptcy in Canada

In our country, part of the bankruptcy process is paying the creditors in the duration of bankruptcy. The Canadian government has set up many payment regulations known as surplus income limits, given the financial turmoil of individuals who go through the process. The concepts behind it are usually too complex for regular people to understand and that’s where the importance of bankruptcy consultants comes in.


Crowe MacKay & Company Ltd has been helping individuals by offering a variety of debt solutions including bankruptcy and proposals. Our bankruptcy consultants can provide apt advice and information to make sure your debt is handled without any issues. Our services are grouped under:


Individual Options
Business Options
Debt Solutions
Forensic Accounting 


In this blog, our expert bankruptcy consultants have explained how surplus income limits benefit the ones who are undergoing bankruptcy.


What is Surplus Income?

Surplus income is one of the components of the Canadian bankruptcy process. It takes into account that bankrupts still need to afford a standard of living. Bankruptcy payments are only made when a family makes money over a certain magnitude. The concept behind this process is based on three main principles:


• The more money you make, the more you will be needed to pay during bankruptcy.
• You will be allowed to keep a portion of your income that is felt reasonable to cover normal living expenses.
• Whatever you earn over the required amount for your family, you are needed to pay half to the trustee for the benefit of your creditors.


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


Surplus Income Limits for 2019

Below mentioned are the surplus income limits set by the government for 2019: 


Family Size | Monthly Income Threshold
1                      $2,203
2                     $2,743

3                     $3,372
4                     $4,094
5                     $4,644
6                     $5,237

7+                   $5,831


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 earn in a month?
• The extent of expenses that’s 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 than usual. Your surplus income will be computed each month to consider the income fluctuations.


The Bankruptcy and Insolvency Act also considers mandatory expenses. These expenses could include medical bills, support payments, penalties and any other expense deducted in relation to your income taxes. Once the deductions against your income are complete, your trustee will make use of the net income amount to decide your bankruptcy payment.


How Long Will You Have to Pay Surplus Income Payments?

After your first six or seven months of bankruptcy (or after 21 months if it’s your second bankruptcy), the trustee will average out the 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, you are needed to go to court. The court will decide how long you will be bankrupt (it will be for more than three years if there are excess earnings).


Let Us Help

Our bankruptcy consultants can help you deal with your surplus income payments with ease. They are trained to assess your current situation before deciding the best options. You can always count on us to be of assistance.
For insights into debt management, read our blog post - How to Manage Debt through Financial Planning?


Call us to learn more about our services.

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