The Superintendent of Bankruptcy just released the surplus income guidelines for 2012. Every year the limit increases a little bit, this year the limit increased by about 2.8% from last year.
What is surplus income?
Surplus income is a monthly income threshold set out by the government for a person or a family to maintain a reasonable standard of living in Canada. Every dollar that you make over the governments threshold is subject to a surplus income payment of 50% of what you are over the limit.
What does surplus income mean to you?
Well basically if you earn $200 ($100 surplus payment) more the government limit then your bankruptcy could go from 9 months to 21 months for a 1st time bankrupt and from 24 months to 36 months for a 2nd time bankrupt.
The New Surplus Limits for 2012
How to Calculate Surplus?
Your trustee will calculate your surplus payments in your bankruptcy and determine how long you will be bankrupt as set out by the guidelines. All you really need to know is what the limit you are allowed to make is.
The basic formula that your trustee will use is:
Net Income – Threshold = Surplus x 50 % = Payment
Here is a quick example:
John is single with no dependents and he earns $2,300 per month:
$2,300-$1,980=$320*50%=$160 – John would have a surplus payment of $160 per month in a bankruptcy. Because he is paying more than $100 per month his bankruptcy would be extended from 9 months to 21 months for a 1st time bankruptcy.
How to avoid paying surplus?
If you file a bankruptcy in Canada you are required by law to report to your trustee what your income is and you are subject to surplus payments based on your income and the government threshold. If you know that you are going to have surplus, then a consumer proposal may be the best option for you.