What Is The Cost of Filing For Personal Bankruptcy?

What Is The Cost of Filing For Personal Bankruptcy?

“What is the cost of filing for personal bankruptcy?” This is a common question which can only answered with “it depends”.

Bankruptcy cost – the concept of surplus income

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.

Factors that determine surplus Income and the cost of your bankruptcy

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:

Persons in Household Net Income Family Unit's Available Monthly Income ($)
2403 2603 2803 3003 3203 3403 3603 3803 4003 4303 4603 4903 5203 5503
1 2203 200 400 600 800 1000 1200 1400 1600 1800 2100 2400 2700 3000 3300
2 2743 0 0 0 260 460 660 860 1060 1260 1560 1860 2160 2460 2760
3 3372 0 0 0 0 0 0 231 431 631 931 1231 1531 1831 2131
4 4094 0 0 0 0 0 0 0 0 0 209 509 809 1109 1409
5 4644 0 0 0 0 0 0 0 0 0 0 0 259 559 859
6 5237 0 0 0 0 0 0 0 0 0 0 0 0 0 266
7+ 5831 0 0 0 0 0 0 0 0 0 0 0 0 0 0

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 $2,203.00 per month. Similarly, a household of two people should be able to live on a monthly net household income of $2,743.00 per month, a household of three people should be able to live on a monthly net household income of $3,372.00 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:

Surplus Income 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 $398.50 each month that you are bankrupt.

Net income $3,000.00
Superintendent's Standards - household of one 2,203.00
Surplus income 797.00
50%
Required to pay $ 398.50

Surplus Income 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 2,743.00
Household surplus income $2,257.00
Debtor's portion of household surplus income ($3,000/$5,000)x$2,743 $1,354.20
50%
Required to pay $ 677.10

You would be required to pay $677.10 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., $2,257.00), we have to determine what your contribution to that household surplus is. We do this by pro-rating $2,257.00 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 $677.10 in this example.

Surplus Income Example 3 – household of two, both people 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 2,743.00
Surplus income $2,257.00
50%
Required to pay $1,128.50

You and your wife would be required to pay $1,128.50 each month that you are bankrupt – that is $1,128.50 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.

Surplus Income 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 $1,800.00
Superintendent's Standards - household of one 2,203.00
Surplus income Nil
50%
Required to pay Nil

Your net monthly income of $1,800.00 doesn’t exceed the Superintendent’s Standards of $2,203.00 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 his 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 his trust account and the funds are held in trust for your creditors. The Trustee pays himself a fee from the trust account for his professional services and once he’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?

Our Promise To You

If you want to work with a Trustee who will give you confidence and peace of mind that your personal bankruptcy proceedings are being dealt with in a professional manner, look no further.

Contact Fong and Partners Inc., a member in good standing with the Better Business Bureau with an A+ Rating and  one of the 3 Best Rated Trustees in the Greater Toronto Area.

Phone: 416-260-3264

Email:   help@startingovertoronto.com