The Bankruptcy and Insolvency Act in Canada makes a distinction between a bankrupt person with low income and a bankrupt person with higher income.

A person who goes bankrupt and who has an income above a certain threshold will have to pay a greater amount over a longer period.

More specifically, the amount of the required monthly payments is 50% (half) of any income above the standard established by the Office of the Superintendent of Bankruptcy (OSB).

The bankrupt person will have to provide his / her Licensed Insolvency Trustee (LIT) with income and expense statements (pay stubs, bank statements, etc.) so that he / she can establish the monthly net income and the required surplus income payment.

The LIT has the obligation to review the monthly income of the family unit on several occasions throughout the bankruptcy. This calculation is very important since it could have an impact on the duration of the bankruptcy as well as the amount of the payments to be made to the LIT.

Income and non-discretionary expenses

Calculating surplus income may seem simple at first glance, but many more complex factors come into play. These include the income of the bankrupt and his / her spouse. In addition, certain specific expenses can reduce your income.

These expenses are called “non-discretionary” and may reduce your income at the end of the calculation. For example: medical expenses, some employment-related expenses, child care expenses, support payments, etc.

During a free consultation with your financial reorganization advisor, we can help you calculate your monthly net income and determine if you have surplus income. He can also explain to you which expenses are non-discretionary according to your particular situation.

This is a very important calculation to do in order to guide you to the best solution for you. Some people with higher incomes should consider a consumer proposal before a bankruptcy.

2019 OSB Standards

The Superintendent’s standards are updated each year and are based on low-income thresholds by size of family unit.

If your monthly net income exceeds this standard, you will be considered in a situation of surplus income and this will affect the duration of your bankruptcy and the amount of your payments.

Number of people in the family unit Standard
1 $2,203
2 $2,743
3 $3,372
4 $4,094
5 $4,644
6 $5,237
7+ $5,831

Source: Appendix A of Directive 11R2-2019 of the Superintendent of Bankruptcy


Surplus Income Calculation Examples

Examples taken from Appendix B of Directive 11R2-2019

Family Unit: 2

Bankrupt’s available monthly income: $2,800
Other family unit member’s available monthly income: $1,000
Family unit’s available monthly income: $3,800
Minus Superintendent’s standard for a family unit of two: $2,743
Total monthly surplus income: $1,057
Family Situation Adjustment:
(2,800 ÷ 3,800 = 73.68%
$1,057 × 73.68% = $778.80)
$778.80
Payment required from bankrupt as per paragraph 5(7) of Directive 11R2:
($778.80 × 50% = $389.40)
$389.40

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A single, first-time bankrupt has regular monthly income of $2,000 and is not required to make payments to the estate under section 68 of the Act.

In completing Form 65, at the outset of the file:

Bankrupt’s available monthly income: $2,000
Other family unit member’s available monthly income: $0
Family unit’s available monthly income: $2,000
Minus Superintendent’s standard for a family unit of one: $2,203
Total monthly surplus income: $0
Payment required from bankrupt as per paragraph 5(7) of Directive 11R2: $0

During the fifth month of bankruptcy, the bankrupt’s income increases to $3,000 per month.

The LIT would average the bankrupt’s monthly income in the eighth month to determine whether the bankrupt has surplus income.

$2,000 × 4 months = $8,000
$3,000 × 3 months = $9,000
Bankrupt’s total income for seven months: $17,000
Bankrupt’s average monthly income for seven months:
($17,000 ÷ 7 =)
$2,428.57
Minus Superintendent’s standard for a family unit of one: $2,203
Total average monthly surplus income: $225.57
Payment required from bankrupt as per paragraph 5(7) of Directive 11R2:
($225.57 × 50% = $112.79)
$112.79

Given that the increase in income has resulted in a requirement to make payments under section 68, the bankrupt must pay the amount owing to the estate ($112.79 x 9 months) and the bankrupt is required to continue to make payments under section 68 for an additional 12 months ($112.79 x 12 months), subject to a further material change in the bankrupt’s financial situation that results in redetermination of whether the bankrupt has surplus income, before being eligible for an automatic discharge under section 168.1 of the Act.

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A single, first-time bankrupt has regular monthly income of $2,500 and is required to make surplus income payments to the estate.

Bankrupt’s available monthly income: $2,500
Other family unit member’s available monthly income: $0
Family unit’s available monthly income: $2,500
Minus Superintendent’s standard for a family unit of one: $2,203
Total monthly surplus income: $297
Payment required from bankrupt as per paragraph 5(7) of Directive 11R2:
($297 × 50% = $148.50)
$148.50

During the fifth month of bankruptcy, the bankrupt’s income decreases to $1,000 per month.

The LIT will average the bankrupt’s monthly income in the eighth month to determine whether the bankrupt has surplus income.

$2,500 × 4 months = $10,000
$1,000 × 3 months = $3,000
Bankrupt’s total income for seven months: $13,000
Bankrupt’s average monthly income for seven months:
($13,000 ÷ 7 =)
$1,857.14
Minus Superintendent’s standard for a family unit of one: $2,203
Total monthly surplus income: $0
Payment required from bankrupt as per paragraph 5(7) of Directive 11R2: $0

Given that the decrease in income has resulted in no requirement to make payments under section 68, the bankrupt is not required to make payments under section 68, subject to a further material change in the bankrupt’s financial situation that results in redetermination of whether the bankrupt has surplus income, before being eligible for an automatic discharge under section 168.1 of the Act. In accordance with paragraph 7(4) of this Directive, the bankrupt is eligible for an automatic discharge at the expiry of the ninth month.

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A salesperson who works on commission and receives payment on an irregular basis files for the first time an assignment in bankruptcy. During the seventh month of bankruptcy, the bankrupt receives three commissions in the amount of $5,000, $4,000 and $5,000 for a total of $14,000. The average monthly income during the seven-month period of bankruptcy is $2,000 ($14,000 ÷ 7 months = $2,000) and this amount is the basis upon which to determine whether the bankrupt has surplus income according to the Superintendent’s standards in place at the date of the bankruptcy and to determine the date on which the bankrupt is eligible for an automatic discharge.

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If during the bankruptcy, the bankrupt receives a lump sum payment that represents a pre-bankruptcy income entitlement, for example, a wrongful dismissal settlement or a pay equity award, the LIT is required to determine what portion of the settlement or award is considered to be income for the purposes of section 68 of the Act. That amount then accrues to the estate for distribution to the creditors, except to the extent that it is required to meet the current needs of the bankrupt and his or her family. For greater clarity, the bankrupt is entitled to retain a sufficient amount of the payment to bring his or her income during the entire course of the bankruptcy up to the amount the LIT would normally allow the bankrupt to retain if the income were available on a periodic basis.

For example, a first-time bankrupt with regular monthly income of $1,000 is not required to make monthly payments to the estate because the monthly income is below the Superintendent’s standard for a family unit of one as per Appendix A. If, during the course of the bankruptcy, the bankrupt receives a wrongful dismissal award of $15,000 in the form of a lump sum payment (the full amount of which is considered to be income), the LIT determines the amount the bankrupt is required to pay to the estate in the following manner:

Bankrupt’s monthly income: $1,000
Minus Superintendent’s standard for a family unit of one: $2,203
Total monthly surplus/shortfall: ($1,203)
Bankrupt’s lump sum payment: $15,000
Minus shortfall × 9 months:
($1,203 × 9 = $10,827)
$10,827
Portion of lump sum to accrue to estate: $4,173

In this example, the bankrupt is required to pay $4,173 of the lump sum award to the estate, but has no ongoing requirement to make payments under section 68 of the Act. Subject to the exceptions noted in section 168.1 of the Act, the bankrupt is eligible for an automatic discharge at the expiry of nine months after the date of bankruptcy.

However, if the bankrupt’s monthly income is such that the bankrupt is required to make payments under section 68 of the Act, the LIT determines what portion of the settlement or award is considered to be income for the purposes of section 68 of the Act. That amount then accrues to the estate for distribution to the creditors. Subject to the exceptions noted in section 168.1 of the Act, the bankrupt is eligible for an automatic discharge at the expiry of 21 months after the date of bankruptcy.

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In a family unit of four, where the non-bankrupt spouse refuses to divulge his or her income, the LIT, for the purposes of determining surplus income, would base the calculation on the amount of $2,047 ($4,094 x 50% = $2,047) instead of $4,094.

Bankrupt’s available monthly income: $2,300
Other family unit members’ available monthly income:
(spouse refuses to divulge income)
$0
Family unit’s available monthly income: $2,300
Minus Superintendent’s standard for a family unit of four:
($4,094 × 50% = $2,047)
$2,047
Total monthly surplus income: $253
Payment required from bankrupt as per paragraph 5(7) of Directive 11R2:
($253 × 50% = $126.50)
$126.50

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