Surplus Income and family size

In a previous blog, I discussed the concept of “surplus income” (income over the income Guideline set by the Office of the Superintendent) and explained how it is calculated for a single person.

Since it’s not just single people who come to BDO – Carleton Place for help, what happens if there is more than one person in the household?

According to Directive 11, as the ‘family unit’ size increases, so does the Guideline amount. In 2013 (updated annually) the Guideline for a single-person household is $2,006, for a two-person household it’s $2,497, for a three-person household it’s $3,070 and so on.

One thing to keep in mind is that ‘family unit’ is broadly defined under section 4 of Directive 11 as the individual plus anyone in the household who either contributes to the household income or benefits from the household expenditure. This means that technically, for the purposes of the Directive, roommates are likely to be considered part of the ‘family unit,’ but more on that a bit later.

My financial problems are my problems – why do I have to involve the other people in my household?

Under section 3 of Directive 11, all members of the ‘family unit’ are required to provide proof of income and non-discretionary expenses so that the Trustee can make an accurate assessment of available funds to be paid into your bankruptcy estate and whether there is actually a need for you to make surplus income payments.

In the case where both members of a couple are discussing either filing a proposal or filing a bankruptcy, this is not usually an issue. If you are worried that this might be an issue, it’s best to contact a Trustee directly for advice as to the best way to go about communicating this need for information from other members of your household.

But what about the situation where only one person in the ‘family unit’ is planning on filing?

All members of a household are still required to provide proof of income and non-discretionary expenses. They are not, however, required to make any payments.

BDO – Carleton Place, like all Trustees, is required to calculate the person’s payments based on their percentage of the ‘family unit’ income. The calculation is the same as for a single person with the addition of an extra step

We take the net income for the family unit, subtract the non-discretionary expenses, and then subtract the Guideline amount. If there’s an amount left over then the ‘family unit’ as a whole has surplus income. The extra step, outlined in section 6(1) of Directive 11, is to then multiply the percentage of the income that the person is responsible for.

In other words, if he or she earns 25% of the ‘family unit’ income, then we would multiply the household surplus income by 0.25 which gives us the amount of surplus income they are responsible for and their payments would be 50% of that. 

The rest of the ‘family unit’ who are earning the remaining 75% of the income are completely unaffected.  

What if my roommates don’t want to provide proof of income?

Under section 6(3) of Directive 11, BDO – Carleton Place would not include them as part of the ‘family unit.’ If a person has two roommates (household of three) and they refuse to disclose their income, the surplus would be calculated solely on the person’s income as a household of 1. This applies to any member of the ‘family unit’ who is not a spouse.

What happens if my spouse doesn’t want to provide proof of income?

Under section 6(2) of Directive 11, BDO – Carleton Place is required to calculate the income over the Guideline by taking the Guideline for the ‘family unit’ size and dividing it in half. In other words, in the case of a family of two adults and a child, the Guideline amount is, as stated earlier, $3,070. If the spouse of the person looking for help refuses to disclose his or her income, the surplus would be calculated on $1,535, or half that amount.

This can have some serious repercussions, since the amount is even less than the Guideline to be used if the person were single. It may mean that the person will have to pay a higher amount over the bankruptcy period or it may mean that instead of being bankrupt for 9 months they are now over the Guideline and will be bankrupt for 21 months and have to pay more in the bankruptcy.

This is one reason why we encourage people to involve their spouses when meeting with the Trustee to discuss their financial situation – so that we can help eliminate any surprises for the other person/spouse who may not be filing anything but who could be affecting the filing for their spouse.

Communication is key. By coming to meet with the Trustee together, you can both learn about the process of bankruptcy together, as well as it being a chance for your spouse to have any questions they might have answered by the Trustee instead of you being expected to have all the answers – as chances are you’re new to bankruptcy too.

The bankruptcy process was established to offer Canadians who have fallen on hard financial times a second chance at establishing a secure financial future.

Because no one ever plans to go bankrupt, there are often many complex emotions attached to the realization that ‘change’ is needed and bankruptcy is the solution, as well as many financial considerations to take into account.

For this reason, it’s important to seek professional advice from a licensed Trustee who will assess your particular circumstances and talk you through all of your available options including a consumer proposal as well as your rights and responsibilities to help you decide whether bankruptcy is the right debt help solution for you.

Control your future.

 

 (Blog contributed by BDO – Carleton Place Senior Administrator, Peter Thorn.)