Do You Declare Your Spouses Income in Bankruptcy?

| Category: Surplus Income
Category: Surplus Income | (8) comments

Most families today have two income earners. When one spouse files for bankruptcy the question often asked is whether or not their significant other will have to report income to the trustee.

The simple answer is YES you must declare your spouses income in bankruptcy. The reason for that is because of the requirement under the bankruptcy law for the Trustee in Bankruptcy to make a determination of whether or not you will have to pay what is referred to as “Surplus Income”. While the bankrupt makes these payments, how much he or she pays does depend upon total family income and total family expenses.

Understanding Surplus Income

The best way to describe surplus income is to view it like a penalty. Essentially, the more money you make while going through the bankruptcy process in Ontario, the more money you must repay to your creditors.

spouses income in bankruptcyDuring your bankruptcy, your Trustee must make a determination of the amount of surplus income payments you will be required to pay in order to be discharged from bankruptcy. These calculations are usually done after you have been bankrupt for seven months and are based on reporting your provide about your monthly family income.

Why Family Income?

The Superintendent of Bankruptcy has determined that you can keep a minimum amount of your income as you need this to live on.  They have determined these limits based on the size of a bankrupt’s family because they know the more dependents you have, the more it will cost you to live. The larger the family, the higher the net monthly family income limit will be.

For this reason you need to report your spouse’s income each month to your trustee.

Paying Your Portion of Income

Just because you are reporting you spouse’s income however does not mean they are required to make any payments. The government uses family income to determine your surplus income but you pay ONLY your share of the surplus into the bankruptcy.

Here is an example to help make this clearer.

Let’s assume you make $2,446 and your spouse makes $1,100. There are just two of you so the government say your can earn up to $2,743 (2019 limits) before you have to pay surplus income. In your case your family income is $3,546 so you are over the limit by $803.

Your share of the family income is $2,446/$3,546 or 69%. You pay your share of the excess or 69% of $803 x 50% (the government says you can keep half of everything over the limit) so you pay $401.50.

So as you can see, while you are reporting your spouse’s income to determine surplus, you are only paying your share.

If your spouse’s income is significantly more than yours it can trigger a surplus income payment for you however that is because the government views living expenses on a family income basis.

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About Joel Sandwith

Joel Sandwith is a Licensed Insolvency Trustee with Hoyes, Michalos & Associates Inc. in London and Sarnia, Ontario. Before joining Hoyes, Michalos in 2009, Joel worked as a Credit Counsellor for Family Services Thames Valley. He brings a wealth of credit counselling and debt management experience to finding solutions for the people he helps get out of debt.

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  1. amy

    My husband owned a business that went under. The CRA liened our home for $144k which was, at the time, 100% of our combined equity. How would the lien and the bankruptcy be handled in this situation?

    Reply
    1. J. Douglas Hoyes, Trustee

      If your husband declares bankruptcy, the lien remains on the home, because it is a secured debt. If the home is owned jointly by you and your husband, CRA would technically only be entitled to his half of the equity, assuming the CRA debt was entirely in his name. In practice this is a very complicated area of law, and if you plan to keep the house CRA’s involvement would be necessary to remove the lien on your portion of the house, so you should consult a lawyer or bankruptcy trustee for further information.

      Reply
  2. Rob

    What happens if both spouses declare bankruptcy. how is surplus income calculated? seperately? or jointly?

    Reply
  3. Joel Sandwith Post author

    Hi Rob, the surplus is then calculated separately, based on share, or percentage of total household income. A simplistic example would be: two spouses, both filing separately, with incomes of $2,000 each, and no dependants. The threshold for a household of two is $2508. If they filed together, with combined income of $4,000, the surplus would be $746 per month ($4000-$2508, then divided by two). If they file separately, the surplus would be $373 each ($4000-$2508, then divided by two, and then 50% each).

    This can make an actual difference if one spouse has a somewhat lower income, in that their share could be small enough to pay no surplus at all. I’d strongly suggest meeting with a trustee to go over specific calculations for each specific situation.

    Reply
  4. bill l.

    I’m going bankrupt, not my spouse. We are seperating. She has her own debts , so her income is going to reducing her debt. Are we still considered a 2 person family for surplus income?

    Reply
    1. J. Douglas Hoyes, Trustee

      Yes, you are a two person family for the purposes of surplus income, but if only you are going bankrupt, your spouse’s income is factored out of the calculation.

      Sound confusing? It is, so that’s why it’s best to have a licensed trustee walk you through the math before you declare bankruptcy.

      Reply
  5. Stacy

    Husband is going bankrupt, we have 1 child, and my income a year is 42,000 and he is not making anything at this time. What amount am I going to have to pay as surpluse income?

    Reply

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