Surplus income is one of the most misunderstood concepts in a bankruptcy. The concept of surplus income doesn’t take into account how individuals actually think about their money. Your income is “surplus” based on a standard set by the Superintendent of Bankruptcy but rarely is “surplus” by our own standards. Your Trustee will tell you that you have “surplus income” while you may not have money left over in your bank account.
When filing an assignment in bankruptcy, the surplus income directive requires an individual to pay some portion of their future income to the Trustee toward their past debt.
How much do I have to pay in surplus income
Surplus income is calculated by:
- Add the monthly take-home income of all members of the household including you
- Subtract the 2018 standard from the table below based on the number of people in your family unit, including you.
- If there is more than one person in the household, multiply the result by your percentage of the total income.
(Your Income) / (Your Income + Spouse’s Income + Other’s Income)
- Divide by two to get your monthly surplus income payment in a bankruptcy
Note: Certain expenses can reduce your income which we discuss below.
Example 1: Jim earns $2,800 per month after tax. Jim lives alone and has no special expenses. To calculate Jim’s surplus income, we take $2,800 less the standard for one person of $2,152 to get $648. Divide by two and Jim is required to pay $324 per month during the time of his bankruptcy.
Example 2: Mary earns $2,200 each month and her husband earns $1,500 for a combined household income of $3,700. They have one child together who lives with them. To calculate surplus income, we take $3,700 less the standard for three people of $3,293 to get $407. Since Mary earns 59.46% ($2,200/$3,700) of the household income, we multiply $407 by that percentage to reach $242. Divide by two to get the required payment of $121 which Mary must make to the Trustee each month.
What are the Superintendent’s standards used to calculate surplus income
The Superintendent of Bankruptcy publishes standards annually which Trustee’s universally use to calculate surplus income payments. The standards are usually updated in late February of each year and provide a base standard of living nationally. Effectively, the Superintendent is saying that you should be able to live on this amount of money while living frugally. All Trustees calculate by the same surplus income standards.
|Number of Persons||Standard (2018/2019)|
How long do I have to pay surplus income for?
A first time bankrupt who is required to pay surplus income is required to make payments for a period of 21 months. A second time bankrupt who is required to pay surplus income is required to make payments for a period of 36 months. A bankrupt who has been bankrupt previously two or more times will be required to make payments for a period of 36 months.
If you are not required to make surplus income payments, or if those payments are less than $100 each month, you may be eligible for an earlier discharge from bankruptcy. An individual who has filed an assignment in bankruptcy may be eligible for an automatic discharge after 9 months for a first time bankruptcy (24 months for a second time bankrupt) if they are not required to make surplus income payments.