In plain language, it’s a fundamental concept in the Canadian bankruptcy system. If you have higher income, you should make higher contributions so that your creditors receive some portion of what’s owed to them during the bankruptcy.Near the start of each new year, the OSB releases a list of new amounts for the year, known as the Superintendent’s Standards. These give the allowable income amounts for different household numbers, ranging from a household of one person to a household of 7+ people. The amounts can be found on the OSB’s website under the Surplus Income Directive.

It’s important to understand that whether you have surplus income is calculated based on your actual income throughout the bankruptcy, and so at the start of the bankruptcy, the Licensed Insolvency Trustee can only provide an estimate based on your current income. If your income increases while in bankruptcy, your payments are likely to be higher than the initial estimate (and if your income decreases, they can be lower).

Household of One

For a household (or household family unit) of one, it is relatively straightforward. The Standard for a household of one is subtracted from the person’s monthly income, and 50% of the amount that is left over is the Surplus Income Payment Obligation, as long as that amount is more than $100. If the amount is under $100 then that person is not considered to have surplus income in that month.

Using the Standard for a household of 1 for 2023 ($2,543), let’s look at some examples:

Solomiya’s monthly income is $2850. Solomiya is single and lives alone.
$2850 – $2543 = $307
50% of 307 = $153.50Solomiya would need to pay $153.50 per month into his bankruptcy if his income stayed the same.

Leo is also single and lives alone, and his monthly income is $2500. Leo’s monthly income is less than the 2023 Standard for a household of one, so Leo has no surplus income.He would only need to pay the agreed-on Trustee’s fees. If his income increased during the bankruptcy enough that his average income was higher than the Standard, he would then have surplus income payments to make. If his income was higher than the Standard for one or two months of the bankruptcy but the average was still lower, he would not pay surplus income.

Household of More Than One

For a household of more than one, the Standard amount increases, but if any other income earners are being included in the household their income will need to be taken into account also.

Let’s look at some examples:

Manjit and her spouse both work full-time and have two children. They are a household of four, and the Standard for four in 2023 is $4,725. Manjit has filed a bankruptcy but her spouse has not. Manjit’s monthly income is $2,600, and her spouse’s is $3,500. Their combined household income is $6,100.$6,100 – $4,725 = $1,375
50% of $1,375 = $687.50The household income is not all Manjit’s, we need to calculate what percentage is Manjit’s and what percentage is her non-bankrupt spouse’s – 42.6% of the income is Manjit’s.
42.6% of 687.50 = 292.87, this would be Manjit’s surplus income payment obligation.

Rodrigo lives with his spouse and their teenager. Rodrigo has filed for bankruptcy, but his spouse doesn’t want to be involved in any way, as their finances are separate. The Standard for a household of three in 2023 is $3,891, but if Rodrigo’s spouse declines to disclose her income to the Trustee, then one-half of that amount must be used to calculate whether Rodrigo has surplus income.One-half of $3,891 is $1,945.50, and that would be the figure used to calculate whether Rodrigo had to make any surplus income payments.

Jenna is a single mother with one child. She lives with her sister and their cousin in a shared house. Jenna’s surplus income would be calculated based on a household of two – though her sister and cousin are family and live with her, their incomes and expenses are separate and they are not counted as part of the household family unit (if they wanted to be involved and disclose their income, the calculations would be similar to Manjit’s example – what percentage of the household income is Jenna’s and what percentage belongs to other household members?).

This applies to any other income earner in the household, except for a spouse (married or common law). A non-spouse income earner can simply be excluded from the household number (and a lower Standard be used, i.e. two for Jenna instead of four with her sister and cousin included), but a non-disclosing spouse means using half the Standard.

Regular household expenses are not considered when calculating surplus income payments – two single people with an income of $3,000 would pay the same amount even if one had $800 in monthly rent to pay and the other had $2400.There are some expenses, known as non-discretionary expenses, which are taken into account. The most common ones are medical expenses, childcare costs, and child support or spousal support payments.

Anthea earns $2,750 per month but has a medical condition that requires her to take regular medication and attend physical therapy sessions. Her out-of-pocket monthly costs for these expenses are $150.If Anthea provides the receipts for these expenses with her monthly income & expense statement, then it will be subtracted from her monthly income before the surplus income calculations are done, and the income considered will be $2,600 instead of $2,750.

A first-time bankruptcy without surplus income is 9 months, and with surplus income, it is 21 months. A second-time bankruptcy without surplus income is 24 months, and with surplus income is 36 months. In short, having surplus income means that a bankruptcy is 12 months longer.As touched on above, surplus income is calculated using your actual income over the bankruptcy period (which is why completing and submitting your monthly income and expense reports is important!). When you start the bankruptcy, the LIT will use your income at that time to determine whether your bankruptcy is filed as a 9-month or 21-month, or a 24 or 36-month for a second bankruptcy.

This length of time is not set in stone. Someone whose bankruptcy is initially filed as a 21-month bankruptcy but who loses their job in the 5th month may have enough of a reduction in income to have their bankruptcy changed to 9 months. Someone who files bankruptcy while on EI, and then finds a job in the 4th month may have enough of an average income increase that their bankruptcy must be extended to 21 months. These scenarios are very individual and are examples of possibilities only.