Does Vacation Pay Affect Surplus Income Calculation?

When someone is bankrupt they are required to complete monthly statements of their income and expenses.  Proof is required of the income for all members of the household and any of what is called non-discretionary expenses, such as medical, support (child and spousal), employment, fines or tickets.

All household income needs to be included in the calculation of surplus income and that includes vacation pay.

People who file for bankruptcy get paid in all types of manner.  Some people have salaried income and earn the same amount of money each month.  Some people earn commissions and their income can vary each month depending on their sales.  Many people earn an hourly wage and their income depends on hours worked.

In the same manner, some people get paid vacation pay as part of every paycheque they receive. This is often the case for salaried employees. Their vacation pay is part of their regular income and not a separate entry or cheque. Others receive a separate vacation payment once a year. Since vacation pay is included as income for salaried type employees it also needs to be included for those people who get paid vacation pay once a year.

What are the implications of a one time vacation pay amount on your surplus income? If you receive this payment while you are collecting your regular wages it is possible that this will mean you have one period with an unusually high income. The good news is that the requirement to pay surplus income is in reality based on your average income over a 6 to 7 month period. Therefore, although you may have had a high income one month due to your vacation pay the affect of averaging out your income may mean that no extra payments are needed.

If you are considering declaring bankruptcy in Ontario, advise your trustee how you get paid your vacation pay and if you expect a payment during your bankruptcy period. They can look at the numbers based on your average pay each month and advise you before you start a bankruptcy if your vacation pay will affect that surplus income calculation.