Surplus Income

Every person that files bankruptcy in Toronto with me asks the same question: What’s involved? What do I have to do to make sure my bankruptcy finishes as quickly as possible.

I realize how nerve wracking and stressful bankruptcy can be, so I try to simplify the process by giving every person who files bankruptcy a sheet that lists their duties and responsibilities. Here’s a quick summary:

1. In a bankruptcy, the individual must report their family income to their trustee for us to determine how much, if any, must be paid to their creditors as part of the bankruptcy process. These rules are referred to as “Surplus Income” rules. Simply put, the more you earn, the more you pay while you are bankrupt in Toronto. Each month you will send my office copies of your pay stubs, and based on your actual earnings we will calculate your required payment.
2. There are two mandatory financial counselling sessions to attend. They last about an hour and focus on budgeting and credit repair. Most people tell me these are great sessions, and help them learn how to budget so they don’t get into financial problems in the future. That’s why I call bankruptcy a "fresh start".
3. It is a requirement that the Trustee file the tax returns for the year of bankruptcy and the previous year, if it has not already been filed.
4. Each month the bankrupt person will also make a contribution to their estate to cover basic administration costs. The cost of your bankruptcy will depend on a number of factors, including what you earn, and the size of your family.

This is a quick summary of your duties as a bankrupt in Toronto. For a more detailed explanation, and to find out what would happen in your specific situation, please call our office in Toronto at 310-PLAN, or e-mail us for more information.

Surplus income is the amount of money required to be paid by you to your creditors every month that you are bankrupt.
You might be wondering how someone who is going bankrupt can afford to pay anything to their creditors. This is exactly what a single mother I was working with last week thought – how can I pay more money when I already can’t pay what I owe now?

The woman I was dealing with had 2 children and was recovering from an illness that had made it hard for her to work regularly. She had $25,000 in debt from her credit cards and a bank loan. She wasn’t making enough money to make a deal with her creditors in a consumer proposal, so she was filing for bankruptcy, as that was the solution that fit her situation the best.

Already upset by the fact she was filing for bankruptcy, she felt overwhelmed by the thought of making monthly payments to her creditors. I was able to answer her questions about surplus income and thankfully put her fears to rest. 
I explained to her that surplus income is not an arbitrary number – surplus income payments are calculated by federal law, and are based on how much family income there is in her household, and how many people live in her household.

For any money that a person makes above the guideline set by the federal government, depending on how many people live in the household, they are required to pay a percentage of that to their trustees, who will in turn send it to their creditors. This amount over the guideline is surplus income.

And because surplus income is governed by federal law, the amount required from each bankrupt is non-negotiable – even a trustee can’t waive surplus income payments. This means, if she missed any payments, she will owe the money at the end of her bankruptcy, won’t receive her discharge, and will remain bankrupt until she has made all of her surplus income payments.

I also reminded her that filing for bankruptcy would take care of her credit card and loan payments, which would free up more of her money so that she would be able to handle the surplus income payments.

Bankruptcy can be an overwhelming process, but in the end it gives you the fresh start you need to enjoy your financial future. For more information about this or any other aspects of bankruptcy, contact me at 310-PLAN for a free consultation. You can also email me any questions you might have about bankruptcy or bankruptcy alternatives. Don’t wait for your bright financial future to find you – enjoy yours today.