The cost of bankruptcy just became more expensive when the Bankruptcy and Insolvency Act was changed to introduce Surplus Income. To fully understand what you will have to pay while you are bankrupt, you need to understand the surplus income rules if you file bankruptcy in Canada.
If you file bankruptcy in Canada, your bankruptcy trustee is required to monitor your income each month. You are required, at the end of each month, to submit copies of your pay stubs and proof of other income to your trustee. The cost of this new change is as follows:
- You will be required to pay half of your surplus income to the trustee while you are bankruptcy
- If your income is more than $200 above the limit set by the government, your bankruptcy is automatically extended for one year, and you are required to make payments into your bankruptcy for an additional year.
Clearly, if you have surplus income, your bankruptcy just got much more expensive.
The surplus income limits are changed each year by the federal government. The change reflects an increase to account for the cost of living. Our article on the cost of bankruptcy provides more information as well as the most recent Surplus Income Limits.
If you would like to estimate what your surplus income might be in a bankruptcy, the Surplus Income Calculator at bankruptcy-canada.com will help.
That’s the impact of the new bankruptcy rules: the cost of the bankruptcy is much higher, and the bankruptcy will last for 21 months instead of 9 months. (If this was a second bankruptcy it would last for 36 months)!
If you are considering bankruptcy, it is essential that you ask your bankruptcy trustee to calculate your expected surplus income each month, so that you can determine whether or not your bankruptcy will last for 9 months or longer. Your trustee can no longer just look at a “typical” month to make this decision. They must look at the calendar to determine when you have an “extra” paycheque month, and calculate accordingly. Of course your trustee can’t do an exact estimate, because if your paycheques fluctuate, so will your surplus income.
Be prepared: book a no charge consultation with a bankruptcy trustee, and ask them to calculate the expected cost of a bankruptcy before you decide to file.