You may be struggling to pay your living expenses and debts and sought the professional advice of a Licensed Insolvency Trustee for solutions. The trustee reviewed your financial situation and advised that based on your income, non-discretionary expenses (child support, medical expenses, etc.) and family size, you would be required to make a monthly surplus income payment to the trustee. If your actual cash flow budget reports a shortfall every month with just your monthly expenses, you may feel that you do not have any “surplus” to pay to your creditors. Hopefully, the following will help you understand the concept behind “Surplus Income Payments.”

The Bankruptcy and Insolvency Act legislates the requirement to pay an amount to the trustee based on standards set by the Superintendent of Bankruptcy. The Superintendent issued a directive to set the amounts that they feel a family needs for basic living expenses based on their income and family size.  The standards are adjusted annually. In layman’s terms, the Superintendent is saying they understand when you can’t pay your debt, but you can’t make $5,000 per month and spend $5,000 per month for expenses and say you can’t pay your creditors. The purpose of the standard is to bring balance between what a bankrupt needs to cover their basic expenses with potentially an adjustment to your lifestyle if you can’t pay your debts, and a creditor’s right to recover a dividend on the amount they are owed.

A single individual who is not obligated to pay any non-discretionary expenses can retain the first $2,243 net income that they earn in a month. If their income exceeds this amount, then 50% of the income earned about this amount must be paid into the trustee. The $2,243 seems like a low threshold to cover rent, travel, food, etc. especially when you consider the amount is standard across Canada, but the trustee has no ability to alter the surplus income payment requirement.

In a first-time bankruptcy, you will be obligated to fill in monthly income and expense reports, and the trustee will calculate your average income for the first 7-8 months to determine what the actual surplus income payment requirement is. If you are obligated to make surplus income payments, your bankruptcy will be extended from 9 to 21 months. The trustee will average the monthly income for a second time bankrupt for the first 22 months following an assignment in bankruptcy, and the requirement to pay surplus income payments will extend the bankruptcy from 24 months to 36 months.

It may seem “unfair” to be penalized for earning more, but I always suggest that a debtor looks at it from the creditor’s perspective. If you were owed money, would you think it was acceptable for someone to continue to pay for a very expensive house and car and educate their children when they didn’t pay you what you were owed? The legislation is trying to balance a fresh start for a debtor and a recovery for the creditors.

Please contact Fresh Start Now, Taylor Leibow Inc. if you would like to discuss surplus income payments in a bankruptcy and other solutions to deal with your debt.

2020 Superintendent’s standards based on family size

Family of 1           $2,243
Family of 2           $2,793
Family of 3           $3,433
Family of 4           $4,168
Family of 5           $4,728
Family of 6           $5,332
Family of 7+         $5,936

 

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)