Most people understand that filing for bankruptcy means that they might lose some of their property. You can read here for more discussion on that topic.
However, many people are surprised to learn that they have to pay a portion of their income to their trustee. The way it works is that government sets monthly standards of income based on the number of members of the family. If the income exceeds the standard, it is called surplus income and the bankrupt person has to pay 50% of the surplus income to his trustee. Following are the 2010 income standards. All figures are net of taxes and deductions – your take home pay.
1 person – $1,884
2 people – $2,345
3 people – $2,883
4 people – $3,501
5 people – $3,971
6 people – $4,478
7 or more – $4,986
The amount of surplus influences the length of time a person in bankruptcy. A first time bankruptcy can be done in as little as 9 months. If the monthly income averages more than $200 over the government limit, a first time bankruptcy is extended to 21 months. For a second time bankruptcy, the periods of time are 24 and 36 months.
The concept is that the more income the bankrupt person has, the more should be paid to the trustee so that the trustee has more to return to the creditors.
When a person is unable to pay his debts in full, but would lose significant assets and/or have significant surplus income payments, a consumer proposal is usually a good alternative. A consumer proposals fixes the amount of the monthly amount and protects a person’s assets.
If you live in Kitchener-Waterloo and want to review your options, feel free to give me a call at 310-PLAN. You can also send me an e-mail.
