The Office of the Superintendent of Bankruptcy (OSB) recently released the new income limits for determining a person’s obligation for paying “surplus income” into his or her bankruptcy.
The basic concept behind “surplus income” in bankruptcy is that the amount a person is required to pay into bankruptcy depends on how much income that person has. Higher income means paying more, which means there will be more money returned back to the creditors. It’s about balancing the rights of the bankrupt person with the right of the creditors to be treated fairly.
To determine the amount a person is required to pay, the government establishes monthly limits or thresholds for take home or after tax income from all sources. The figures are based on the size of the family. If the bankrupt person’s income is under the threshold, that person is not required to make extra payments into his bankruptcy. If the income is above the threshold, the person is required to pay 50% of the extra – the “surplus” – into his bankruptcy. It’s a little more complicated than I’ve described here, but you get the general idea.
Here are the figures for 2011:
Family of 1 – $1,926
Family of 2 – $2,398
Family of 3 – $2,948
Family of 4 – $3,579
Family of 5 – $4,059
Family of 6 – $4,578
Family of 7 or more – $5,097
For some people, bankruptcy is not a good choice for dealing with debt because of the surplus income rules. For some people, it becomes difficult or impossible to make their surplus income payments as well as manage their normal living expenses. In that sort of situation, a consumer proposal might be a better choice.
A consumer proposal fixes your monthly payment at a reasonable amount to repay a portion of your debts. Unlike bankruptcy, you maintain control over all of your assets and aren’t required to pay “surplus income.” However, to have your creditors agree to a consumer proposal, you would have to offer more money in total than they would expect to receive from bankruptcy. Because payments in a consumer proposal are over a longer period than bankruptcy, the monthly amount is less even if the total is more. It’s designed to be a compromise that both you and your creditors are happy with.
If you are struggling with your debts and want to talk about your options, please call me at 310-PLAN. I’ll ask you some questions to understand your circumstances, and then provide you with information about all of your options. You can also send me your questions by e-mail.
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