Calculating Surplus Income – Directive No. 11R2 – 2011

[Editor's note: If you are looking for the current standards and calculation of surplus income, visit this page first.]

Interpretation

1. In this Directive,

“Act” means the Bankruptcy and Insolvency Act;

“spouse” means either of two persons who

(a) are married to each other, or
(b) are not married to each other and to whom at least one of the following situations applies:

(i) have been living together in a conjugal relationship for at least 12 continuous months;
(ii) have been living together in a conjugal relationship and

- a child was born of their union;

- have, together, adopted a child; or

- one of them has adopted a child of the other;

“Superintendent’s standards” refers to the table in Appendix A of this Directive;

“surplus income” means surplus income as defined in subsection 68(2) of the Act;

“total income” means total income as defined in subsection 68(2) of the Act.

Authority and Purpose

2. This Directive is issued pursuant to the authority of paragraph 5(4)(c) and section 68 of the Act and is intended to assist the trustee in determining equitably and consistently the portion of the bankrupt’s income that should be paid into the bankrupt’s estate.

Sections of the Act Concerned

Sections 68, 168.1 and 172.1.

Family Unit

3. In determining the bankrupt’s personal and family situation for the purposes of subsection 68(3) of the Act, it is necessary to establish the earnings and expenses of both the bankrupt and the bankrupt’s family unit. The bankrupt must disclose the earnings and expenses of each member of the family unit by providing the trustee with income and expense statements for the entire period of bankruptcy. Trustees must use their professional judgment in exercising their duty to apply due diligence when determining the bankrupt’s average monthly income. The trustee’s file should clearly document the method by which he/she calculated the amount, if any, the bankrupt is required to pay to the estate. As well, the trustee may question each member of the family unit as to their earnings and expenses.

4. For the purposes of this Directive, the bankrupt’s family unit includes, in addition to the bankrupt, any persons who reside in the same household and who benefit from either the expenses incurred or income earned by the bankrupt, or who contribute to such expenses or earnings. A person who does not reside in the same household shall be considered as a member of the family unit if the person benefits from or contributes to the expenses incurred or income earned by the bankrupt.

Calculation

5. (1) In order to apply the Superintendent’s standards for determining surplus income (Appendix A), the bankrupt shall first complete the monthly income and expense statement of the family unit, including the bankrupt, in Form 65.

(2) The family unit’s total monthly income is determined by subtracting from the total of all of its members’ monthly incomes the following amounts, as applicable:

(a) in the case of a salaried employee, minimum statutory remittances (income tax, pension and employment insurance deductions) and other mandatory deductions paid; or

(b) in the case of a person who is self-employed, business expenses and deductions as permitted by the Income Tax Act or similar provincial legislation, minimum statutory remittances and instalment tax payments made.

(3) The family unit’s available monthly income is determined by subtracting from the family unit’s total monthly income the monthly non-discretionary expenses applicable to the personal and family situations of both the bankrupt and the bankrupt’s family unit:

(a) child support payments;

(b) spousal support payments;

(c) child care expenses;

(d) expenses associated with a medical condition;

(e) Court-imposed fines or penalties that are in the process of being paid;

(f) expenses permitted by the Income Tax Act (or similar provincial legislation) that are a condition of employment;

(g) any other debt where a stay of proceedings has been lifted by the Court, and a recourse authorized; and

(h) interest paid on debts that are not dischargeable in bankruptcy under
paragraph 178(1)(g) of the Act.

(4) The trustee shall verify the accuracy of the income and expense statement submitted by the bankrupt by requiring that the bankrupt provide:

(a) proof of income; and

(b) proof of payments made pursuant to paragraphs 5(2) and 5(3) above.

(5) For the purposes of subsection 68(3) of the Act, the trustee determines whether the bankrupt has surplus income by subtracting from the family unit’s available monthly income the amount that, according to the Superintendent’s standards (Appendix A), corresponds to the number of persons in the family unit.

(6) Where the bankrupt has monthly surplus income of less than $200, the bankrupt is not required to pay any amount to the bankrupt’s estate under this Directive.

(7) Subject to the family situation adjustment described in paragraph 6(1) of this Directive and subject to an adjustment to the surplus income calculation based on average monthly income described under paragraph 7 or 8 of this Directive, where the bankrupt has monthly surplus income equal to or greater than $200, the bankrupt is required to pay 50 percent of the monthly surplus income to the bankrupt’s estate.

Family Situation Adjustment

6. (1) The amount that the bankrupt is required to pay to the bankrupt’s estate as determined in paragraph 5(6) or 5(7) of this Directive shall be adjusted to the same percentage as the bankrupt’s portion of the family unit’s available monthly income.

(See example in Appendix B)

(2) Where the non-bankrupt spouse refuses or neglects to divulge his or her income or expenses, the trustee shall, for the purposes of determining surplus income, apply 50 percent of the applicable Superintendent’s standards (Appendix A) corresponding to the number of persons in the family unit.

(3) Where a person considered to be a member of the family unit as described in paragraph 4 of this Directive (other than a spouse), who is not a bankrupt, refuses or neglects to divulge his or her income and expenses, this person is deemed not to be a member of the family unit. The trustee shall describe these circumstances in Form 65, Monthly Income and Expense Statement of the Bankrupt/Debtor and the Family Unit and Information (or Amended Information) Concerning the Financial Situation of the Individual Bankrupt and, when required, in Form 82, Report of Trustee on Bankrupt’s Application for Discharge.

Average monthly surplus income — bankrupts who are eligible for automatic discharge under section 168.1 of the Act

7. (1) In addition to the requirements of subsection 68(3) of the Act, the trustee shall review the financial circumstances of a bankrupt who is eligible for an automatic discharge to determine whether the bankrupt is required to make payments under section 68 of the Act on at least the following two occasions: (1) at the outset of the file when completing Form 65; and (2) during the eighth month in the case of
a first-time bankrupt and during the 23^rd month in the case of a second-time bankrupt.

(2) When reviewing the bankrupt’s financial circumstances, the trustee shall calculate the bankrupt’s average monthly income based on the income and expense statements. The average monthly income is to be used to determine the amount the bankrupt is required to pay to the bankrupt’s estate.

(3) If, based on the average monthly income, there is a requirement to make payments under section 68 of the Act, the bankrupt will be required to continue to make payments under section 68 for an additional 12 months before being eligible for an automatic discharge under section 168.1 of the Act. Moreover, the average monthly income is to be used to determine the amount the bankrupt is required to pay to the bankrupt’s estate for the 21 or 36 months, as the case may be. If there is a further material change in the bankrupt’s financial situation, the trustee shall redetermine whether the bankrupt has surplus income, but the bankrupt is not eligible for an earlier discharge, subject to an application under subsection 168.1(2) of the Act.

(4) If, however, based on the average monthly income, there is no requirement to make payments under section 68, the bankrupt is eligible for an automatic discharge at the expiry of the 9^th month / 24^th month after the date of bankruptcy, as the case may be.

(5) If the bankrupt is eligible for an automatic discharge on a date that is different from the date indicated on Form 68 or Form 69 sent by the trustee, the trustee shall immediately send an amended Form 68 or Form 69 indicating the new date on which the bankrupt will be eligible for an automatic discharge.

(6) If the bankrupt fails to provide the trustee with the information needed to determine the average monthly income in accordance with paragraph 7(2) of this Directive, the trustee shall oppose the discharge of the bankrupt.

(7) Subject to section 170.1 of the Act, if a bankrupt has not paid the required amount to the bankrupt’s estate, the trustee shall oppose the discharge of the bankrupt.

(8) The trustee is not required to return to the bankrupt any payments that are made to the estate under section 68 of the Act where it is determined, based on the average monthly income, that the bankrupt was required to make payments of a lesser amount or no payments under section 68.

Average monthly surplus income — bankrupts who are not eligible for automatic discharge under section 168.1 of the Act

8. (1) In addition to the requirements of subsection 68(3) of the Act, the trustee shall review the financial circumstances of a bankrupt who is not eligible for an automatic discharge to determine whether the bankrupt is required to make payments under section 68 of the Act on at least the following two occasions: (1) at the outset of the file when completing Form 65; and (2) when completing Form 82.

(2) When reviewing the bankrupt’s financial circumstances, the trustee shall calculate the bankrupt’s average monthly income based on the income and expense statements. The average monthly income is to be used to determine the amount the bankrupt is required to pay to the bankrupt’s estate.

(3) If the bankrupt fails to provide the trustee with the information needed to determine the average monthly income in accordance with paragraph 8(2) of this Directive, the trustee shall oppose the discharge of the bankrupt.

(4) If a bankrupt has not paid the required amount to the bankrupt’s estate, the trustee shall oppose the discharge of the bankrupt.

(5) The trustee is not required to return to the bankrupt any payments that are made to the estate under section 68 of the Act where it is determined, based on the average monthly income, that the bankrupt was required to make payments of a lesser amount or no payments under section 68.

(See example in Appendix B)

Discontinuation of Payments

9. The bankrupt’s requirement to make payments under section 68 of the Act shall cease when the bankrupt is discharged, or as otherwise ordered by the Court. However, if an opposition to the automatic discharge has been filed, the bankrupt’s requirement to make payments under sectiom 68 of the Act ceases on the day on which the bankrupt would have been automatically discharged had the opposition not been filed, or as otherwise ordered by the Court.

Coming into Force

10. This Directive comes into force on the day on which subsection 1(1) of Chapter 36 of the Statutes of Canada, 2007, comes into force. This Directive, applies only to a person who, on or after the day on which subsection 1(1) of Chapter 36 of the Statutes of Canada, 2007, comes into force, is described in one of (a) – (f) listed below:

(a) the person becomes bankrupt;

(b) the person files a notice of intention;

(c) the person files a proposal without having filed a notice of intention;

(d) a proposal is made in respect of the person without the person having filed a notice of intention;

(e) an interim receiver is appointed in respect of the person’s property and all or part of the person’s property comes into the possession or under the control of the interim receiver; or

(f) all or part of the person’s property comes into the possession or under the control of a receiver.

As such, in order to determine whether Directive No. 11R2-2011 applies to a particular insolvency file, the question that needs to be asked is whether one of the “triggering events” described in (a) – (f) occurred on or after the coming into force date.

Enquiries

11. For any questions pertaining to this Directive, please contact your local OSB office.

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Appendix A

Superintendent’s Standards

– 2011 –

The Superintendent’s Standards are derived from the Low Income Cutoffs (LICO) released by Statistics Canada. The Superintendent uses the before-tax LICO for urban areas with 500,000 people and over. The 2011 standards are updated by adding to the 2009 LICO, the 2010 Consumer Price Index (CPI) (1.84%) plus a 2.1% adjustment reflecting the 2011 CPI expectation

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Appendix B  

Example 1

Family Situation Adjustment
(Family unit of two)

Example 2

Increase in income

A single, first-time bankrupt has regular monthly income of $1500 and is not required to make payments to the estate under section 68 of the Act.

In completing Form 65, at the outset of the file:

During the fifth month of bankruptcy, the bankrupt’s income increases to $3 000 per month.

The trustee would average the bankrupt’s monthly income in the eighth month to determine whether the bankrupt has surplus income.

Bankrupt’s total income for seven months:

Given that the increase in income has resulted in a requirement to make payments under section 68, the bankrupt must pay the amount owing to the estate ($108.50 x 9 months) and the bankrupt is required to continue to make payments under section 68 for an additional 12 months ($108.50 x 12 months), subject to a further material change in the bankrupt’s financial situation that results in redetermination of whether the bankrupt has surplus income, before being eligible for an automatic discharge under section 168.1 of the Act.

Example 3

Decrease in income

A single, first-time bankrupt has regular monthly income of $2 200 and is required to make surplus income payments to the estate.

During the fifth month of bankruptcy, the bankrupt’s income decreases to $1 000 per month.

The trustee will average the bankrupt’s monthly income in the eighth month to determine whether the bankrupt has surplus income.

Given that the decrease in income has resulted in no requirement to make payments under section 68, the bankrupt is not required to make payments under section 68, subject to a further material change in the bankrupt’s financial situation that results in redetermination of whether the bankrupt has surplus income, before being eligible for an automatic discharge under section 168.1 of the Act. In accordance with paragraph 7(4) of this Directive, the bankrupt is eligible for an automatic discharge at the expiry of the ninth month.

Example 4

Irregular income

A salesperson who works on commission and receives payment on an irregular basis files for the first time an assignment in bankruptcy. During the seventh month of bankruptcy, the bankrupt receives three commissions in the amount of $5000, $4000 and $5000 for a total of $14 000. The average monthly income during the seven month period of bankruptcy is $2000 ($14 000 ÷ 7 months = $2000) and this amount is the basis upon which to determine whether the bankrupt has surplus income according to the Superintendent’s standards in place at the date of the bankruptcy and to determine the date on which the bankrupt is eligible for an automatic discharge.

Example 5

Increase in income (lump sum payment of pre-bankruptcy income)

If during the bankruptcy, the bankrupt receives a lump sum payment that represents a pre-bankruptcy income entitlement, for example, a wrongful dismissal settlement or a pay equity award, the trustee is required to determine what portion of the settlement or award is considered to be income for the purposes of section 68 of the Act. That amount then accrues to the estate for distribution to the creditors, except to the extent that it is required to meet the current needs of the bankrupt and his or her family. For greater clarity, the bankrupt is entitled to retain a sufficient amount of the payment to bring his or her income during the entire course of the bankruptcy up to the amount the trustee would normally allow the bankrupt to retain if the income were available on a periodic basis.

For example, a first-time bankrupt with regular monthly income of $1000 is not required to make monthly payments to the estate because the monthly income is below the Superintendent’s standard for a family unit of one as per Appendix A. If, during the course of the bankruptcy, the bankrupt receives a wrongful dismissal award of $15 000 in the form of a lump sum payment (the full amount of which is considered to be income), the trustee determines the amount the bankrupt is required to pay to the estate in the following manner:

In this example, the bankrupt is required to pay $6 666 of the lump sum award to the estate, but has no ongoing requirement to make payments under section 68 of the Act. Subject to the exceptions noted in sectionl 168.1 of the Act, the bankrupt is eligible for an automatic discharge at the expiry of nine months after the date of bankruptcy.

However, if the bankrupt’s monthly income is such that the bankrupt is required to make payments under section 68 of the Act, the trustee determines what portion of the settlement or award is considered to be income for the purposes of section 68 of the Act. That amount then accrues to the estate for distribution to the creditors. Subject to the exceptions noted in section 168.1 of the Act, the bankrupt is eligible for an automatic discharge at the expiry of 21 months after the date of bankruptcy.

Example 6

Non-bankrupt spouse refuses or neglects to divulge his or her income or expenses

In a family unit of four, where the non-bankrupt spouse refuses to divulge his or her income, the trustee, for the purposes of determining surplus income, would base the calculation on the amount of $1789.50 ($3579 x 50% = $1789.50) instead of $3579.

(Family unit of four)