Bankruptcy Kitchener Blog by Scott Schaefer

When someone files for personal bankruptcy the amount they must pay into the bankruptcy is calculated based on their take home income (after taxes and payroll deductions) less certain expenses such as child care, child and spousal support and medical expense. As everyone’s situation and income is different, the amount they would be required to pay into a bankruptcy can be very different. The government refers to this term as “Surplus Income”. The general concept is to be, the more someone makes, the more they have to pay into bankruptcy. These funds are used then to pay the creditors part of the debt back.

The length of a personal bankruptcy is based on the amount of surplus income calculated over the course of the bankruptcy. A first time bankruptcy can be discharged (completed) after 9 months if there is no surplus income calculated. If surplus income results on an average up to discharge, then the first time bankruptcy can be discharged after 21 months. These time lines are relatively new as they were part of the change in the bankruptcy laws on September 18, 2009. For a second time bankruptcy, the length of bankruptcy can be 24 and 36 months respectively.

The government uses these monthly surplus threshold amounts for what base amount people can earn during a personal bankruptcy and any amount above that threshold, the government expects 50% to be paid into the bankruptcy. These thresholds are based on the family size. The 2011 monthly threshold rates were just released on March 11, 2011 and are as follows:

Family of 1 – $1,926
Family of 2 – $2,398
Family of 3 – $2,948
Family of 4 – $3,579
Family of 5 – $4,059
Family of 6 – $4,578
Family of 7 or more – $5,097

Let’s discuss a couple examples:

Case 1 – A single person making $2,500/month of take home pay on average. He pays $200 in child support. Therefore, net income for bankruptcy purposes is $2,300 ($2,500-$200). He is over the threshold limit by $374 ($2,300-$1926). He must pay surplus of $187/month for 21 months.

Case 2 – A married couple with 3 children. Their combined monthly take home income is $4,755/month which is a combination of employment income, child tax benefits and child support. They pay $300 in child care expenses. The net income for bankruptcy is $4,455 ($4,755-$300) and they are over the government limit by $396 ($4,455-$4,059) and 50% is payable into the bankruptcy for a total of $198/month.

Do any of these situations hit home? Or sound familiar? If you are in need of a fresh financial start and surplus is going to be too much per month based on your income bracket, the option of a consumer proposal maybe the solution. In fact, since the new laws came out in 2009, consumer proposals have been on the rise as the preferred option in restructuring personal debts.

The concept of surplus income can be confusing. If you are feeling the pressure of your debts and want to explore all options call me at 310-PLAN or send me an e-mail. As a licensed trustee in bankruptcy and a consumer proposal administrator, I have an obligation to review all options in detail with someone so that they can make an informed decision. My Kitchener bankruptcy office is conveniently located at 607 King Street West between uptown Waterloo and Downtown Kitchener. There is free parking and a bus stop in front of our office. For more information and a worksheet on surplus income please follow this link. To read the full directive issued by the government, please use this link.

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