What is an “surplus income”?

You may have heard about "surplus income" in the context of bankruptcy and would like to know what it means.

Indeed, the presence or absence of surplus income can have a significant impact on your bankruptcy. Firstly, because it determines the number of months you will be in bankruptcy and, secondly, the monthly payment you will have to pay during your bankruptcy. The higher your “surplus income,” the more likely your creditors will expect you to prioritize a proposal rather than a bankruptcy.

What is the duration of a bankruptcy?

The duration of bankruptcy is directly linked to the presence or absence of so-called “surplus” income during your bankruptcy. A 1st bankruptcy usually lasts 9 months if there is no surplus income, and 21 months if there is. For a 2nd bankruptcy, the usual duration is 24 months and 36 months with surplus income. By establishing this rule, the government aimed to encourage individuals with income above “standards” to consider the possibility of making a consumer proposal rather than declaring bankruptcy. Otherwise, a longer bankruptcy period and higher payments are imposed.

How is surplus income calculated?

Having “surplus income” means having an average income received during your bankruptcy that exceeds the standard set by the government for a person in a similar financial and family situation to yours.

To determine if you have surplus income and to calculate it, the following factors will be taken into account:

  1. The number of dependents in your household.
  2. Expenses you have to bear for childcare, alimony/child support (to be paid), as well as expenses related to a medical condition and for your employment.
  3. If you have a spouse/partner, whether his/her income is disclosed or not.

It is the calculation of all these elements that determines if you have “surplus income“.

In the absence of “surplus income”, the monthly contribution to be made at Jean Fortin’s is $170 per month for 9 months for a first-time bankruptcy or $125 per month for 24 months for a second-time bankruptcy.

If you have “surplus income,” the duration will be extended by an additional 12 months, and the monthly contribution will be set according to a mathematical formula established by law.

From the 1st appointment with your advisor, they will explain in detail:

  • What is surplus income?
  • How to calculate it?
  • The amounts to be paid.
  • How many months you will be in bankruptcy.

For any questions or advice, feel free to contact our professionals. Consultation can be done remotely or in person, according to your preference. It’s free, confidential, and without obligations.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee