Directive No. 11R - Surplus Income

Jean Emonds Tower South
365 Laurier Avenue West
8^th Floor
Ottawa, Ontario
K1A 0C8
http://osb-bsf.ic.gc.ca

Date:      January 23, 2006
To:          Distribution List
Subject:  Directive No. 11R “Surplus Income”

For your information, you will find attached the revised Appendix “A” which reflects the standards for the year 2006 as well as the revised page 5 of the Directive. The revision of Appendix “A” has necessitated an update to the example provided on page 5.

Att.

Marc Mayrand
Superintendent of Bankruptcy

N^o 11R
Surplus Income

Issued: October 3^rd, 2000

This Directive replaces Directive No. 11, which came into force April 30^th, 1998.

This Directive comes into force on November 1^st, 2000.

Interpretation

1.      In this Directive,

"Act" means the Bankruptcy and Insolvency Act;

"Superintendent's standards" refers to the table set out in Appendix A of this Directive.

Purpose

2.      The purpose of this Directive, issued pursuant to paragraph 5(4)(c) and section 68 of the Act, is to assist the trustee in determining equitably and consistently the portion of the bankrupt's income that should be paid into the bankrupt's estate.

Sections of the Act concerned

Sections 68 and 170.1.

Background

3.      Subsection 68(3) of the Act states: 

"The trustee shall

(a) having regard to the applicable standards established under subsection (1), and to the personal and family situation of the bankrupt, fix the amount that the bankrupt is required to pay to the estate of the bankrupt;

(b) inform the official receiver in writing of the amount fixed under paragraph (a); and

(c) take reasonable measures to ensure that the bankrupt complies with the requirement to pay."

Family Unit

4.      In determining the bankrupt's personal and family situation, it is necessary to establish the earnings and expenses of both the bankrupt and the bankrupt's family unit. The bankrupt must disclose the earnings and expenses of each member of the family unit. As well, the trustee may question each member of the family unit as to their earnings and expenses.

5.      For the purposes of this Directive, the bankrupt's family unit includes, in addition to the bankrupt, any persons who reside in the same household and who benefit from either the expenses incurred or income earned by the bankrupt, or who contribute to such expenses or earnings. A person who does not reside in the same household shall be considered as a member of the family unit if the person benefits from, or participates in, the bankrupt's income or expenses.

Calculation

6. (1)      In order to apply the Superintendent's standards (Appendix A), the bankrupt shall first complete the income and expense statement of the family unit, including the bankrupt, in Form 65 entitled Monthly Income and Expense Statement of the Bankrupt and the Family Unit and Information (or Amended Information) Concerning the Financial Situation of the Individual Bankrupt.

6. (2)      The family unit's total monthly income shall be determined by subtracting from the total of all its members' monthly incomes the following amounts, as applicable:

1. In the case of a salaried employee, minimum statutory remittances (income tax, pension and employment insurance deductions) and other mandatory deductions paid; or

2. in the case of a person who is self-employed, business expenses and deductions as permitted by the Income Tax Act or similar provincial legislation, minimum statutory remittances and instalment tax payments.

6. (3)      The family unit's available monthly income is determined by subtracting from the family unit's total monthly income the monthly non-discretionary expenses applicable to the personal and family situations of both the bankrupt and the bankrupt's family unit: 

1. child support payments;

2. spousal support payments;

3. child care expenses;

4. expenses associated with a medical condition;

5. court-imposed fines or penalties that are in process of being paid;

6. expenses permitted by the Income Tax Act (or similar provincial legislation) that are a condition of employment; or

7. any other debt where a stay of proceedings has been lifted by the court, and a recourse authorized.

6. (4)      The trustee shall verify the accuracy of the income and expense statement submitted by the bankrupt by requiring that the bankrupt provide: 

1. proof of payments made pursuant to subsections (2) and (3) above;

2. proof of income.

7. (1)      The trustee determines the bankrupt's total monthly surplus income by subtracting from the family unit's available monthly income the amount which, according to the standards, corresponds to the number of persons in the family unit, as set out in Appendix A.

7. (2)(a)      Where the bankrupt's total monthly surplus income is equal to or greater than $100 and less than $1,000, 50% of the amount determined in subsection (1) shall be required from the bankrupt;

(b)      Where the bankrupt's total monthly surplus income is equal to or greater than $1,000, at least 50%, but no more than 75% of the amount determined in subsection (1), shall be required from the bankrupt.

Family Situation Adjustment

8.      The amount that the bankrupt is required to pay to the bankrupt's estate shall be adjusted to the same percentage as the bankrupt's portion of the family unit's available monthly income.

9.      For the purposes of this Directive and subsection 68(3) of the Act, when the trustee has determined the amount the bankrupt is required to pay to the bankrupt's estate, the trustee shall inform the Official Receiver of that amount, in Form 65 entitled Monthly Income and Expense Statement of the Bankrupt and the Family Unit and Information (or Amended Information) Concerning the Financial Situation of the Individual Bankrupt.

Example (Family unit of 2)

10.      Where a person considered to be a member of the family unit as defined in section 5, who is not a bankrupt, refuses or neglects to divulge his or her family income and expenses, for the purposes of subsection 7(1), this person is deemed not to be a member of the family unit. The trustee shall describe these circumstances in Form 65 entitled Monthly Income and Expense Statement of the Bankrupt and the Family Unit and Information (or Amended Information) Concerning the Financial Situation of the Individual Bankrupt and in Form 82 entitled Report of Trustee on Bankrupt's Application for Discharge.

Irregular Income

11.      When a bankrupt's income is irregular (e.g., sale commissions or seasonal employment), the amount that the bankrupt is required to pay to the bankrupt's estate may be deferred until the time of preparation of Form 82 entitled Report of Trustee on Bankrupt's Application for Discharge, if necessary. At that time, the average income for the period of bankruptcy would be considered for the purpose of determining the amount that the bankrupt is required to pay to the bankrupt's estate and a conditional discharge shall be recommended by the trustee for the total amount, if this has not already been paid.

12.      The trustee shall comment on this situation when dealing with surplus income in Form 82 entitled Report of Trustee on Bankrupt's Application for Discharge.

Example

An individual with no regular income, but an occasional sales commission, files an assignment in bankruptcy. During the eighth month of bankruptcy, the bankrupt receives three commissions in the amount of $6,000, $4,000 and $8,000 for a total of $18,000. The monthly average during the nine month period of bankruptcy would be $2,000, and the total monthly surplus income determination would be made retroactively with a recommendation for a conditional discharge being made in the amount of the determined surplus.

Discontinuation of payments

13.      The payments which the bankrupt is required to make to the bankrupt's estate shall cease upon the discharge of the bankrupt, or as otherwise ordered by the court.

Marc Mayrand
Superintendent of Bankruptcy

Att.

Appendix "A"

Superintendent's Standards
- 2006 -

Total Monthly Surplus Income

The Superintendent's Standards ("S") are derived from the Low Income Cutoffs (LICO) released by Statistics Canada. The Superintendent uses the before-tax LICO for urban areas 500,000 people and over. The 2006 standards are updated adding to the 2001 LICO the 2002, 2003, 2004 and 2005 Consumer Price Index (CPI), 2.2%, 2.7%, 1.9% and 2.2% plus a 1.9% adjustment reflecting the 2006 CPI expectation.

The amounts shown above represent the monthly total surplus income of the bankrupt over the standards, from which the surplus income payment should be calculated.