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


September 5, 2017

What is surplus income, how and why is it calculated and collected?

What is surplus income:

Surplus income isn’t as it sounds, it isn’t money that is “left over” or “surplus” to paying monthly bills.  Surplus income is somewhat “notional” it is calculated from income that exceeds the amounts that are required to live a reasonable lifestyle.

Why is surplus income calculated and collected:

Surplus income is calculated in order to provide creditors with some measure of restitution from more well off bankrupts.  The idea, notion, is that people with higher incomes are better positioned to be able to repay some amounts to their creditors when faced with bankruptcy.

Bankrupts who do have surplus income are required to make payments over an extended period of time.  The money is collected by the trustee and distributed according to a priority scheme established by the Bankruptcy & Insolvency Act between the trustee’s fees, the Superintendent’s Levy and the creditors in the form of a dividend.

How is surplus income calculated:

The trustee must resort to guidelines provided by Section 68 of the Bankruptcy & Insolvency Act, previous court decisions, and formulas that are provided by the Office of the Superintendent of Bankruptcy (“OSB”).  The OSB formulas use the Low Income Cut Off (“LICO”) from Statistics Canada as a baseline measure for the amount of income that is required by families based on the number of people dependent on the family income.

The OSB formulas are not the final word in calculating surplus income, they are more of a guideline.  Trustees are expected to consider many other factors when calculating surplus income.  If the superintendent, the creditors or the debtor disagree with the trustee’s analysis they can request a mediation meeting to review and revise the calculations.  The parties also have the option of resorting to the bankruptcy court for a final order in respect of amounts calculated and payable.

How is surplus income collected:

Bankrupts enter into a voluntary payment agreement with their trustee in order to address surplus income payments.  Those who don’t pay voluntarily may be subject to a court ordered garnishee action.

To learn more about surplus income and how it is calculated call the office.