If you file for bankruptcy in Canada, you are allowed to keep a portion of your income each month. If you earn over this limit, you are required to contribute half of that surplus income into your bankruptcy estate, and it is distributed to your creditors. Each year the Office of the Superintendent of Bankruptcy increases these limits to account for inflation.
Each month while you are bankrupt, you will send your trustee proof of your income (such as your paystubs) and proof of allowable expenses (like child care or medical expense receipts), and the trustee will subtract your allowable expenses from your income to calculate your net income.
Your surplus income is the amount that your net income exceeds the surplus income threshold.
You are required to pay half of your surplus income to the trustee each month ($500 in this example).
If this is your first bankruptcy, after seven months your trustee will average your income, and if your average surplus income exceeds $200 per month, your bankruptcy will be extended an extra year, from nine months to 21 months, and you will be required to pay surplus income each month that you are bankrupt.
If your average surplus income is less than $200 per month, you are eligible to be discharged after 9 months, if you have completed your other duties and if there are no objections to your discharge.
The rules are different if you are a repeat bankrupt, and the calculation is more complicated if you are married and your spouse earns income but is not bankrupt, so for more details we suggest you contact a licensed bankruptcy trustee to do the calculation for you.
If you expect to earn income over your limit, you may want to consider a consumer proposal as an alternative to paying the surplus income penalty.
← Will An Automatic Stay Of Proceedings Stop Canada Revenue Agency?