How Much Is Too Much?
People sometimes ask: “If I go bankrupt will the trustee take all my income?” Well the simple answer is NO. But to understand that answer you need to wade through some layers of legal complexity.
While you go through bankruptcy, the trustee is required to monitor your income to see if maybe some part of it should go to your creditors. Remember, you have stopped making any payments directly to those creditors, so they are not getting anything from you. But, assuming you’re working and have income, it’s fair to ask whether any portion of your income should go to the creditors.
In the old days this question had to be answered by the court on a case-by-case basis. But since the early 1990s, the courts couldn’t keep up with the rising number of bankruptcies, so the government decided to let the trustee handle this question. After all, the trustee takes care of practically everything else. However, to ensure that consistency and fairness is maintained across the country, the government gave the trustees a strict formula that enables them to work out a solution that is fair and protects both your rights and your creditors’.
Every year, using the latest cost of living statistics, the federal government sets a “Standard” based on how many people live in a household. (Obviously the more people in the house, the more money these people need to get by.) This standard establishes a threshold. If your family income exceeds the applicable threshold, you are deemed to have “Surplus Income.” If you have a surplus, you may pay half the amount to a trustee for the benefit of the creditors. The formula is fair and most people have no problem with it.
Here’s an example: You’re part of a family of two who has a total combined after-tax income of $2,908. This is exactly $400 more than the standard threshold for a two-person family ($2,508). So the bankruptcy law requires you to pay half of this $400 surplus income, $200, to the trustee for the creditors. The Industry Canada website has all the details.
While this formula is fair, it can get complicated, especially since everyone’s situation is different. For instance, you have the right to question and disagree with whatever number the formula comes up with. There is a mediation procedure in place that can help you to work out a compromise.
Since the issue of surplus income may affect your decision about what course to take to solve your debt problems, you need to know the facts and your options. The best way to do this is have a trustee at Richard Killen & Associates explain them to you. It doesn’t matter how much surplus income you may or may not have, the consultation with us is truly FREE.
Will Bankruptcy Affect My Income?
Some people assume that if they file for bankruptcy they will have to turn over all their income to the trustee. Not true.
But there are other concerns people have over their income. A question we are often asked is: Will bankruptcy affect my income? Will I lose any of it to the trustee or creditors? The answer is: maybe, but probably not.
The fact is after going bankrupt people often find they now have “free income” for the first time in years. This is because they no longer have a long list of debts to pay every month.
When a person goes bankrupt, they are basically saying they can’t pay all their debts. They may be able to pay their rent and utilities and put food on the table, but they can’t do that and pay their credit cards and other loans. However, the moment they go bankrupt and get under the legal umbrella, those same creditors can no longer demand money from them, so they may actually have money to spare.
Now it is possible that person’s income maight be affected, but only if they are making such a substantial amount every month that, in fairness to the creditors, a portion of their surplus should be set aside for the creditors’ benefit. But this only applies after all the necessities are taken care of, so it is not such an onerous thing and most people have no problem with it. In fact it helps people feel better about having to go through the whole process in the first place.
There is actually a formula for working this out and the trustee will explain it all before you make the decision to file the bankruptcy. It’s just one of the many questions that a visit to the trustee clears up.
Most people don’t necessarily think of it this way, but the process goes directly to restore your control and give you an empowerment over your own affairs. This is one of the main goals and purposes of the bankruptcy laws.