Declaring bankruptcy in Canada doesn’t mean all your income becomes off-limits to creditors. If you earn more than a set amount based on your household size, you may be required to pay part of that income into your bankruptcy estate.
This is known as surplus income, and it can directly affect both how much you pay and how long your bankruptcy lasts. In this post, we explain how surplus income works, how it’s calculated, and why it matters in both bankruptcy and consumer proposal scenarios.
What is Surplus Income?
Surplus income is a calculation established under the Bankruptcy and Insolvency Act (BIA) by the Office of the Superintendent of Bankruptcy (OSB). It determines how much a person in bankruptcy may be required to pay toward their debts based on their income. The principle is simple: the more you earn above a government-set threshold, the more you may have to pay to your creditors.
Surplus income obligations can affect both how much you pay during bankruptcy and how long your bankruptcy lasts.
2025 Surplus Income Thresholds
These thresholds, effective as of January 1, 2025, represent the monthly net income limits based on household size. If your household’s net income exceeds these amounts by $200 or more, you may be required to make surplus income payments during bankruptcy.
| Household Size | Monthly Income Threshold (2025) |
| 1 | $2,666 |
| 2 | $3,318 |
| 3 | $4,080 |
| 4 | $4,953 |
| 5 | $5,618 |
| 6 | $6,336 |
| 7 or more | $7,054 |
These figures are derived from the OSB’s Directive No. 11R2-2025, Appendix A. ISED Canada
How to Use These Thresholds
To determine if you have surplus income:
- Calculate your household’s net monthly income, including all members contributing to or relying on the household income.
- Subtract the applicable threshold for your household size from your total net income.
- If the result is $200 or more, you are considered to have surplus income.
- You are required to pay 50% of the surplus amount to your Licensed Insolvency Trustee (LIT), adjusted based on your share of the household income.
Example:
- Household size: 3
- Net monthly income: $4,500
- Threshold for 3 people: $4,080
- Surplus income: $4,500 – $4,080 = $420
- Payment to LIT: 50% of $420 = $210 (adjusted based on your income share)
Recommended Reading: Acquiring New Assets While Undischarged From Bankruptcy
How Surplus Income Affects Your Bankruptcy
The presence of surplus income extends the length of your bankruptcy:
- First-time bankruptcy, no surplus income: 9 months until automatic discharge.
- First-time bankruptcy, with surplus income: Extended to 21 months.
- Second-time bankruptcy, no surplus income: 24 months.
- Second-time bankruptcy, with surplus income: Extended to 36 months.
If you’re unable to pay all your surplus income by the end of your bankruptcy term (21 or 36 months), your Licensed Insolvency Trustee can work with you to create a payment arrangement. While there’s no interest on the balance, your discharge will be delayed until the full amount is paid.
Ongoing Responsibilities During Bankruptcy
- You must file monthly income and expense reports (MIS) to your LIT.
- Notify your LIT if your income or household size changes.
- If you fall behind on surplus income payments, your LIT may oppose your discharge.
If you can’t pay the full surplus income by the end of the 21- or 36-month period, a payment arrangement may be made based on your ability to pay. However, your bankruptcy discharge may be delayed until the balance is paid in full.
Recommended Resource: Life After Personal Bankruptcy
Surplus Income and Consumer Proposals
Surplus income can also influence whether a consumer proposal is a better option than bankruptcy.
When evaluating your debt relief options, your LIT will calculate what you would pay in bankruptcy based on your surplus income, and use that to help determine a fair offer for your creditors in a consumer proposal.
Why this matters:
- Creditors are more likely to accept your proposal if it offers more than they would recover in a bankruptcy.
- Unlike bankruptcy, in a consumer proposal your payments are fixed, and you don’t have to report monthly income.
- If your income increases during the proposal, you keep the increase — your payments don’t go up.
Additional Flexibility:
- Payments can be spread up to 60 months (5 years).
- You can pay off your proposal early without a penalty.
- You gain protection from creditor collection actions without going bankrupt.
Recommended Reading: How Long does a Consumer Proposal Stay on my Credit Report?
Why Surplus Income Matters
| Bankruptcy | Consumer Proposal |
| Surplus income increases payments | Payments based on surplus income estimate |
| Monthly income reporting required | No monthly income reporting |
| Discharge delayed if unpaid | Fixed payment regardless of income change |
| Term can be extended (21–36 months) | Term is fixed (up to 5 years) |
Understanding your surplus income obligations is essential in making the right decision about your financial future. Your LIT will guide you through both options and help determine the most affordable and strategic debt solution for your situation.
Whether you’re considering bankruptcy or a consumer proposal, understanding surplus income is key to choosing the right solution. At C.E. Craig & Associates Inc., our Licensed Insolvency Trustees will walk you through every calculation and ensure you make the best financial decision for your unique situation.
