When you meet with a trustee in bankruptcy to review your financial affairs and discuss options to solve your unsecured debt problem, the trustee will engage in a discussion with you regarding your sources of income and expenses.
The reason for this discussion is to:
• Determine if your income is at a level that would require monthly contributions of a portion of your income for the benefit of your creditors;
• Determine if your income and expenses are such that you could lodge a viable consumer proposal to your creditors; and
• Start the process of providing you with the tools to better manage your income and expenses going forward.
The surplus income guidelines are established by the superintendent of bankruptcy based on the low-income cutoff information provided by Statistics Canada.
For example, a single person with no dependents has a surplus income guideline amount of $2,014. A family of four would have a surplus income guideline amount of $3,743.
What does this mean?
In assessing your financial situation and the most suitable course of action to resolve your debt problem the trustee will determine if, based on your family size, your share of the monthly surplus income exceeds $200. This is determined by subtracting the guideline amount from your total household income to arrive at the surplus income. The surplus income is prorated between you and your spouse to determine if your share exceeds $200. If your share of the monthly surplus income exceeds $200, this can be both good and not so good news in your effort to solve your debt problem.
On the positive side, it demonstrates that you have sufficient income to potentially lodge a viable consumer proposal with your creditors and avoid bankruptcy. On the negative side, if you choose to file an assignment in bankruptcy, your bankruptcy would last 12 months longer because you have surplus income.
For purposes of the bankruptcy administration, if your prorated share of the household surplus income is less than $200 you would not have any requirement to make any payments on account of surplus income.
You may think that this process is a disincentive to aspire to earn higher income because the trustee is going to take all of your surplus income. This is not the case.
In a bankruptcy, under the surplus income guidelines, the objective is to balance the interests of the debtor in seeking relief from their debt burden with the interest of creditors who will suffer a loss on the amounts owed by you. This balance is accomplished by the requirement that the debtor contributes 50 per cent of his or her share of the surplus income averaged over the duration of the bankruptcy. The remaining 50 per cent is retained by you to meet unexpected expenses or to start a savings program for future use.
The above is not a complete treatment of the subject. A trustee should be consulted to obtain a complete understanding of surplus income in a bankruptcy.