Surplus Income Calculations - Manitoba Bankruptcy
How to Calculate Surplus Income in Bankruptcy
Family unit of 2 Surplus Income Adjustment Calculation
Bankrupt’s net monthly income: $3,300
Second family member’s net income: $1200
Total family income unit: $4,500
Government income threshold for a family unit of 2: $2,743
Income over the threshold: $1,757 ($4,500 minus $2,743)
The trustee will calculate the percentage of the bankrupt’s income of the total family income to determine the required surplus income payments.
($3,300 ÷ $4,500 = 73.3%)
The bankrupt makes 73.3% of the total family unit’s income.
($1,757 x 73.3% = $1,287.88 (the bankrupt’s surplus income)
The bankrupt will therefore have to pay 50% of $1,287.88 ($643.95) to the bankruptcy estate.
The bankrupt will have to pay $643.95 in surplus income payments
Surplus Income Calculation – Single Bankrupt With an Income Increase During the Bankruptcy
John, a single bankrupt who has gone bankrupt for the first time, has a regular job with a net monthly income of $2000.
Since John’s income is less than the government’s threshold for a single family unit, he is not required to make surplus income bankruptcy payments under section 68 of the Act.
However, John gets a raise at the 5th month of his bankruptcy and his income has increased to $3,000 a month.
John’s LIT (Licensed Insolvency Trustee) will average John’s income during the bankruptcy at the eighth month of the bankruptcy to determine if the bankrupt has surplus income requirements.
The LIT will average John’s income during the prior 8 month period.
John made $2,000 for the first 4 months = $8000
John made $3,000 for the next 3 months = $9,000
John’s total income during the first 7 months of bankruptcy is $17,000
$17,000 ÷ 7 months = $2,428.57
The threshold for a single family is $2203
Total average monthly surplus income is $225.57 ($2,428.57 – $2,203)
John now will be required to pay $112.79 (half of his $225.57 surplus income) to his bankruptcy estate.
Additionally, John’s bankruptcy will be extended by 12 months (to 21 months) and he will be required to make 21 surplus income payments of $112.79
Surplus Income Calculation – Single Bankrupt With an Income Decrease During the Bankruptcy
Jane is a first time bankrupt with regular monthly income of $2,500.
Since her income is over the government’s income threshold for a single family unit ($2203) she is required to pay her trustee surplus income payments of $148.50 a month (50% of the $297 her income is over the threshold).
At the fifth month of her bankruptcy Jane’s income is reduced to $1,000 monthly.
Jane’s trustee will average her monthly income at the eighth month to calculate the required surplus income payments.
Her income was $10,000 in the first 4 months of the bankruptcy and $3,000 for the next 3 months.
Jane’s LIT calculates that Jane’s average income over the first 7 months of the bankruptcy is $1,857.14 ($13,000 total income divided by 7 months).
As Jane’s average income over the bankruptcy is significantly less than the income threshold for a single family, Jane will no longer have to pay surplus income payments and will be automatically discharged from bankruptcy in 9 months.
Calculating Surplus Income For a Bankrupt With Irregular Income
If a bankrupt with irregular income files an assignment into bankruptcy the trustee will use their income during the first seven months of the bankruptcy to determine their surplus income.
If the bankrupt received 3 commissions during the first 7 months of the bankruptcy for $4,000, $7,500 and $2,500, the trustee will calculate the total commissions.
In this case, the total commissions (income) for the bankrupt is $14,000.
The trustee determines that the bankrupt’s average monthly income is $2,000, which is the amount the trustee will use to determine whether the bankrupt has surplus income payment requirements and to determine the date the bankrupt will be eligible for an automatic discharge.
As the bankrupt’s average income of $2,000 is less than the government income threshold ($2203) they will not have to pay surplus income and they will be eligible for an automatic discharge from bankruptcy at the end of the 9th month of bankruptcy.
Surplus Income Calculation – Lump Sum Payment Income Increase
If a bankrupt receives a lump sump payment that is considered pre-bankruptcy income, the bankrupt’s trustee will have to calculate how much of the lump sum payment is available to the bankruptcy estate.
The bankrupt is eligible to keep most of the lump sum payment to bring their income to a level required to comfortably provide for their family unit.
For example, David is a first time bankrupt with a regular net income of $1000.
David is not required to make any surplus income payments to the bankruptcy estate, as his income is $1,203 less than the government set threshold for a single member family.
During the bankruptcy David receives a lump sum payment of $15,000.
His trustee will calculate the amount owed to the estate by looking at his income shortfall.
As David’s income is $1,000 and the threshold is set at $2,203, his income shortfall is $1,203 a month.
The trustee calculates that David’s income shortfall below the threshold over the life of the bankruptcy is $10,827 ($1,203 x 9)
The trustee then deducts the shortfall of $10,827 from the $15,000 to determine that David owes $4,173 to the bankruptcy estate.
Calculating Surplus Income When a Non-Bankrupt Spouse Does Not Divulge Their Income & Expenses
A bankrupt has a family size of 4.
The bankrupt provides the trustee with their income of $2,300 a month, but their spouse refused to divulge their income and expenses to the trustee.
In this case, the LIT, will determine the surplus income calcululations on the amount of $2,047 ($4,094 income threshold for a family of 4 divided by half)
The trustee will then make the calculation as follows:
Monthly income of $2,300
Other available monthly income of $0.
Minus Superintendent’s threshold for a family unit of four divided in 2 ($4,094 × 50% = $2,047) $2,047
Total surplus income of $253 ($2300 minus $2047)
The bankrupt will be required to pay $126.50 (50% of $253) to the trustee for distribution to his/her creditors.