Will I have to make excess income payments if I go bankrupt?

During your bankruptcy process, you may have to make excess income payments. These payments are intended to pay creditors as much as possible without ruining the bankrupt person. Surplus income payments depend on your income. The more money you make during your bankruptcy, the bigger your surplus income payments will be.

How much would I have to pay?

Image result for how much The Government of Canada regulates the bankruptcy process at all levels, including the amount of surplus income payments that a bankrupt person is expected to pay. The government is not trying to take away the entire income of a bankrupt person. They have created income thresholds that allow people in bankruptcy to maintain a reasonable standard of living while contributing to the repayment of debts.

Each year the Superintendent of Bankruptcy establishes new income thresholds based on Statistics Canada’s income statistics.

Size of the family Surplus income threshold
1 member $ 2,089
2 members $ 2,601
3 members $ 3.197
4 members $ 3,882
5 members $ 4,403
6 members $ 4.965
7 members $ 5,528

If your family income exceeds the income thresholds set by the government, you will have to make excess income payments.

During your bankruptcy

Image result for bankruptcy

During your bankruptcy, you will be required to file a monthly income and expense return with your licensed insolvency trustee (or trustee in bankruptcy). This statement is simply a list of all the money coming into your household over a period of one month, including:

  • Your paychecks
  • Any support payments you receive (eg, support to children)
  • Tax benefits for children
  • Any other money / income (eg rental of tenants)

You will also be required to submit a list that details how this income was spent during the month. This information will be used by your licensed insolvency trustee to calculate whether or not you will need to make excess income payments during your bankruptcy.

How to calculate your excess income payments for 2016

Image result for calculate In order to know if you will have to make excess income payments, you will need to include your income in the following equation:

Net income (for 1 month) – Threshold (based on the number of family members) = Surplus x 50% = Your payment

Here is an example of calculating excess income payments, which should clear the equation for you.

Example of an excess income payment

Marc is single, his net income (the amount he brings home after taxes) for one month is $ 2500. With the equation given above, the calculation of Marc’s excess income is:

$ 2500 – $ 2089 = $ 411 x 0.5 = $ 205.50

Based on this calculation, Marc will have to make an excess income payment of $ 205.50 to his trustee in insolvency for a period of 21 months. The total amount he will have to pay is $ 4,315.50.

Once the 21 month period is over:

There was no change in the amount of money he makes

There was no change in the size of his family

He made his 21 payments

There was no objection to his debts being paid

Marc will automatically be acquitted of his bankruptcy

Period of bankruptcy payments

In the example above, we explain that Mark will have to make excess income payments for a period of 21 months, but this is not the case for all bankrupt people. The total amount of excess income you make will determine the duration of your bankruptcy.

If your monthly excess income is over $ 200 (which means you are currently paying your insolvency trustee half of that each month in excess income payments) your bankruptcy will be extended for a total of 21 months.

Remember, if this is not your first bankruptcy, the total amount of your excess income payments you may have to make will be different. Consult your licensed insolvency trustee to find out more about a second bankruptcy.

Find the right trustee

Working in conjunction with the right trustee will allow you to go through the bankruptcy process as smoothly as possible. If you are looking for an experienced and trusted Insolvency Trustee, Prêts Québec can put you in touch with someone in your area.