One of the most confusing things about bankruptcy is the concept of surplus income. You might think, I make $2,500 and spend $2,500 so I don’t have surplus income, or I make $2,500 and spend $2,000 so I have $500 surplus income. Both examples are incorrect.
Surplus income is a concept in the Bankruptcy and Insolvency Act created by the Federal Government. It essentially means that the more you make, the more you pay.
The theory behind it is this:
- Those who make more than the government set guidelines should have to pay more to file for bankruptcy
- You keep half of the income over the surplus income threshold
- You pay half of the income over the surplus income thresold
Surplus income payments are calculated at least two times during your bankruptcy and then again before you are discharged. When you first meet with a trustee in bankruptcy, they review your pay stub and any non-discretionary expenses you have such as support, day care or medical. They then set a payment to make sure you are paying enough in your bankruptcy. Your file is reviewed in month 8 for a first time bankruptcy and month 23 for a second time bankruptcy. At that point we review what your average income has been to date and adjust the payment if necessary.
Every month you will be reporting your income to the trustee. However, if during your bankruptcy your income has decreased, you should be in contact with your trustee about the change. If necessary, your payment can be changed. Conversely, if your income is higher than expected, you should be increasing your payments to make sure you get discharged on time.
If after month 9 (or 23 if a second time filer), your situation changes negatively, you should be advising your Trustee who will then recalculate your surplus income if necessary.
As you can see, surplus income is confusing. What is important is to keep in contact with your Trustee to ensure you are paying what you should be paying.