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.
2023 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 | $2,543 |
| 2 | $3,165 |
| 3 | $3,891 |
| 4 | $4,725 |
| 5 | $5,359 |
| 6 | $6,044 |
| 7+ | $6,729 |
Source: Appendix A of Directive 11R2-2023 of the Superintendent of Bankruptcy
Surplus Income Calculation Examples
The Office of Superintendent of Bankruptcy offers many examples of surplus income calculation. You can view the examples under Appendix B of the Directive 11R2.