111 Waterloo Street, Suite 310
London, ON N6B 2M4

Understanding Surplus Income and Bankruptcy

January 8, 2018

The Bankruptcy and Insolvency Act has a provision (under Section 68) requiring that individuals who make more money than the Government’s Low Income Cut Off (“LICO”) should pay half of that extra or “surplus” for an additional period of twelve months.

If that thought seems a bit overwhelming it is not surprising, the whole surplus income regime is a little complicated. Let’s use an example of how things can change.

For the year 2017 the LICO for a single person was $2,121 per month – in other words, according to the federal government, a single person would need $2,121 of take home (after tax) income each month to meet basic living expenses. Any income over that amount is to be considered “surplus” to those basic needs.

If you earn more money than the LICO your bankruptcy would be extended by an additional twelve months (from nine months for a first-time filer to twenty-one months) and you would be required to pay half of the surplus for that whole time.

But there is a buffer built in to the calculations, if the amount payable (half of the surplus) is less than $100 per month you would not be required to pay. In other words, your income could exceed the LICO by $200 per month and you would not be required to make payments of surplus income.

There are other allowances that must also be considered. If for instance you were earning a net income of $3,000 per month but paying child support of $800 that would be allowed against your income reducing it to $2,200 and you would not be required to pay surplus.

There are other factors as well – such as reasonable work-related expenses. If you must pay licensing or registration fees or have special clothing requirements, excessive travel or other direct work-related expenses those are allowed against your net income. Court fines also come off your income calculation and so do out of pocket medical expenses.

If your income fluctuates, for instance with a salesperson, an average is taken over the period of the bankruptcy. The average is then weighted against the LICO to determine if you have surplus income.
There is also a provision for mediation which can reduce or significantly alter the terms of payment of surplus income.