Cost of filing bankruptcy in Canada? To answer this question, let’s look at a key principle of Canadian bankruptcy law called “surplus income”.
Here’s the concept: your creditors are considered “innocent bystanders” in the sense that they wouldn’t have lent you money if they knew you were going to file for bankruptcy. Therefore, if you have the ability to repay some of that money back, then you should do so.
So the question is, how much are you required to repay to your creditors? The answer to that question isn’t as simple as we would hope, and will be determined by the following factors:
- Your net monthly income
- The number of members in your household
- The net monthly income of the other members in your household
- For each household size, a household income guideline published by the Office of the Superintendent of Bankruptcy, called the” Superintendent’s Standards”. Here is a table for 2018:
| Persons in Household | Net Income | Family Unit's Available Monthly Income ($) | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2352 | 2552 | 2752 | 2952 | 3152 | 3352 | 3552 | 3752 | 3952 | 4252 | 4552 | 4852 | 5152 | 5452 | 5752 | 6052 | ||
| 1 | 2152 | 200 | 400 | 600 | 800 | 1000 | 1200 | 1400 | 1600 | 1800 | 2100 | 2400 | 2700 | 3000 | 3300 | 3600 | 3900 |
| 2 | 2679 | 0 | 0 | 0 | 273 | 473 | 673 | 873 | 1073 | 1273 | 1573 | 1873 | 2173 | 2473 | 2773 | 3073 | 3373 |
| 3 | 3293 | 0 | 0 | 0 | 0 | 0 | 0 | 259 | 459 | 659 | 959 | 1259 | 1559 | 1859 | 2159 | 2459 | 2759 |
| 4 | 3998 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 254 | 554 | 854 | 1154 | 1454 | 1754 | 2054 |
| 5 | 4535 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 317 | 617 | 917 | 1217 | 1517 |
| 6 | 5114 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 338 | 638 | 938 |
| 7+ | 5694 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 358 |
This table indicates what monthly net income a household of a certain size can comfortably live with to pay for necessities of life such as food, shelter and clothing. Looking at the two left-hand columns of this table, you can see that according to the Superintendent’s Standards, a household of one person should be able to live on a monthly net income of $2,152.00 per month. Similarly, a household of two people should be able to live on a monthly net household income of $2,679.00 per month, a household of three people should be able to live on a monthly net household income of $3,293.00 per month and so on.
So getting back to the main question: “how much will filing for personal bankruptcy cost me?” – you are required to pay 50% of every dollar over and above the Superintendent’s Standards for a household of a certain size. Let’s look at some examples to illustrate this:
Example 1 – Household of one
You decide to file for bankruptcy and your net monthly income is $3,000.00 per month. You would be required to pay $424.00 each month that you are bankrupt.
| Net income | $3,000.00 |
|---|---|
| Superintendent's Standards - household of one | 2,152.00 |
| Surplus income | 848.00 |
| 50% | |
| Required to pay | $424.00 |
Example 2 – Household of two, but only one person filing bankruptcy
You are married and you need to file for bankruptcy, but your wife does not. There are only two people in your household – you and your wife. Your net monthly income is $3,000.00 per month and your wife’s is $2,000.00 per month:
| Net income, debtor | $3,000.00 |
|---|---|
| Net income, spouse | 2,000.00 |
| Total household income | 5,000.00 |
| Superintendent's Standards - household of two | 2,679.00 |
| Household surplus income | $2,321.00 |
| Debtor's portion of household surplus income ($3,000/$5,000)x$2,679 | $1,392.60 |
| 50% | |
| Required to pay | $696.30 |
You would be required to pay $696.30 each month that you are bankrupt. Note that this calculation differs from that of Example 1 – your wife is not filing for bankruptcy, so once we calculate the household surplus income (i.e., $2,321.00), we have to determine what your contribution to that household surplus is. We do this by pro-rating $2,321.00 by your respective contributions to the net income of the household. The resulting calculation is your portion of the household surplus income. In turn, that amount is multiplied by 50% to determine what you’re required to pay each month you’re in bankruptcy, which is $696.30 in this example.
Example 3 – household of two, both persons filing bankruptcy
Let’s keep the same facts as in Example 2, but now both you and your wife decide to file for bankruptcy. Again, there are only two people in your household – you and your wife. Your net monthly income is $3,000.00 per month and your wife’s is $2,000.00 per month:
| Net income, debtor | $3,000.00 |
|---|---|
| Net income, spouse | 2,000.00 |
| Total household income | 5,000.00 |
| Superintendent's Standards - household of two | 2,679.00 |
| Surplus income | $2,321.00 |
| 50% | |
| Required to pay | $1,160.50 |
You and your wife would be required to pay $1,160.50 each month that you are bankrupt – that is $1,160.50 for the both of you to file for bankruptcy together.
Of course, we can expand these examples to more complicated family situations where there are more than two people in the household, but you get the idea. When you meet with your trustee, she will be able to calculate what you’re required to pay for your individual circumstances.
Example 4 – household of one, but net income is low
Now, what if your income is so low that you don’t have any surplus income. To illustrate – let’s assume you are living alone and have a net monthly income of $1,800.00. You decide to file for bankruptcy:
| Net income | $1,800 |
|---|---|
| Superintendent's Standards - household of one | 2,152 |
| Surplus income | Nil |
| 50% | |
| Required to pay | Nil |
Your net monthly income of $1,800.00 doesn’t exceed the Superintendent’s Standards of $2,152.00 for a household of one person. Therefore, you have no surplus income.
In this case, you would pay to the trustee a basic fee for her professional services. This will usually range between $1,600.00 to $2,000.00, and can be paid on a monthly payment plan over several months.
So what happens to the surplus income money you pay to the trustee? It gets deposited into her trust account and the funds are held in trust for your creditors. The trustee pays herself a fee from the trust account for her professional services and once she’s paid, the remaining funds are disbursed to the creditors.
From reviewing the above, you’re probably asking the question – “if I’m required to pay surplus income every month that I’m bankrupt, how long am I bankrupt for? That is, how long does my bankruptcy last?”
This dovetails nicely into our next section…
Bankruptcy in Canada - how long does it last? »