Surplus Income in Bankruptcy: How It Works and What You'll Pay (2026)

Last updated: April 2026

Surplus income is the most important financial concept in Canadian bankruptcy. It determines two critical things: how much you will pay during your bankruptcy and how long your bankruptcy will last. Many people assume bankruptcy is a flat process — file, wait nine months, get discharged. But surplus income can more than double both the cost and the duration.

The Office of the Superintendent of Bankruptcy (OSB) sets income thresholds each year that define what constitutes a reasonable standard of living for different family sizes. If your income exceeds your threshold, you pay half of the excess to your creditors. This guide explains exactly how the system works with the approximate 2026 thresholds and walks through detailed calculations.

How Surplus Income Is Calculated

The formula is straightforward:

Surplus Income = (Net Household Income - OSB Threshold for Family Size) x 50%

You only make surplus income payments if your income exceeds the threshold by more than $200 per month. If the surplus is $200 or less, no payment is required.

2026 OSB Thresholds (Approximate)

The OSB publishes these thresholds annually, typically adjusting for inflation. The approximate 2026 thresholds for net monthly income are:

• Single person (1): $2,543
• Family of 2: $3,163
• Family of 3: $3,889
• Family of 4: $4,723
• Family of 5: $5,358
• Family of 6: $6,042
• Family of 7+: $6,726

Net income means your take-home pay after income tax, CPP, and EI deductions. It includes income from all sources: employment, self-employment, pensions, employment insurance benefits, child tax benefits, rental income, and any other regular income.

What Counts as Household Income

Surplus income is calculated on total household income, not just the bankrupt person's income. This means:

• Your spouse or common-law partner's income is included, even if they are not filing for bankruptcy
• Child tax benefits and other government benefits are included
• Support payments received (child support, spousal support) are included

However, the threshold also increases with family size, which partially offsets the inclusion of a spouse's income. Your LIT will calculate the net effect based on your specific household composition.

Allowable Deductions

Before comparing your income to the threshold, certain expenses are deducted:

• Child care costs necessary for employment
• Medical expenses not covered by insurance
• Child support or spousal support payments you are required to make
• Fines or penalties imposed by a court
• Expenses necessary to earn employment income (within reason)

These deductions can meaningfully reduce your surplus income calculation. Discuss all potential deductions with your LIT.

Calculation Examples

Example 1: Single Person, Moderate Income

• Net monthly income: $3,200
• OSB threshold (single): $2,543
• Surplus: $3,200 - $2,543 = $657
• Monthly payment: $657 x 50% = $328.50/month

Since $657 exceeds the $200 threshold, surplus income payments apply. This person would pay approximately $328/month in surplus income during their bankruptcy.

Example 2: Family of 3, Dual Income

• Bankrupt person's net income: $2,800/month
• Spouse's net income: $2,200/month
• Total household income: $5,000/month
• OSB threshold (family of 3): $3,889
• Surplus: $5,000 - $3,889 = $1,111
• Monthly payment: $1,111 x 50% = $555.50/month

Even though the bankrupt person's individual income is only $2,800, the household income of $5,000 triggers significant surplus income payments.

Example 3: Single Person, Lower Income

• Net monthly income: $2,700
• OSB threshold (single): $2,543
• Surplus: $2,700 - $2,543 = $157

Since $157 is below the $200 threshold, no surplus income payment is required. This person pays nothing in surplus income.

Example 4: Family of 4, Single Earner

• Net monthly income: $5,200
• OSB threshold (family of 4): $4,723
• Child care expenses (deductible): $400/month
• Adjusted income: $5,200 - $400 = $4,800
• Surplus: $4,800 - $4,723 = $77

After the child care deduction, the surplus is only $77 — below the $200 threshold. No surplus income payment is required. This example shows why documenting deductible expenses matters.

How Surplus Income Affects Bankruptcy Duration

Surplus income does not just increase what you pay — it also extends how long your bankruptcy lasts.

First-Time Bankruptcy

• No surplus income (or under $200/month): 9 months
• Surplus income over $200/month: 21 months

Second Bankruptcy

• No surplus income: 24 months
• Surplus income over $200/month: 36 months

Total Cost Comparison

Using Example 1 (single person, $328.50/month surplus):

• Without surplus income: 9-month bankruptcy, ~$1,800 base cost (LIT fees, counselling)
• With surplus income: 21-month bankruptcy, $328.50 x 21 = $6,898.50 in surplus payments + base costs

The difference is substantial. This is why surplus income is the most important factor in determining the true cost of bankruptcy.

Monitoring and Reporting

During your bankruptcy, you must provide monthly income and expense reports to your LIT. This is not optional:

• Monthly reports: Due by the 15th of the following month
• Supporting documents: Pay stubs, bank statements, tax assessments
• Changes in income: Must be reported immediately — a raise, job loss, or new employment affects your surplus calculation
• Non-compliance: Failing to provide reports can lead to the court opposing your automatic discharge

Your LIT calculates your surplus income each month and averages it over the bankruptcy period. This means a few high-income months can be offset by lower-income months, and vice versa.

Strategies for Managing Surplus Income

Legitimate Approaches

• Maximise deductions: Ensure all allowable expenses are captured — child care, medical costs, support payments, and necessary work expenses
• Time your filing: If you expect a temporary income increase (bonus, overtime period), consider filing after it passes, when your regular income better reflects your ongoing situation
• Consumer proposal alternative: If surplus income would make bankruptcy expensive and lengthy, a consumer proposal may cost less overall while protecting your assets and offering a shorter credit report impact

What Not to Do

• Do not hide income: Your LIT and the OSB can audit your financial records. Concealing income is a criminal offence under the BIA and can result in your discharge being refused
• Do not quit your job to avoid surplus income: Courts view voluntary income reduction during bankruptcy unfavourably. A judge can impute income at your earning capacity, not your actual earnings
• Do not divert income to a spouse or family member: Transfers designed to reduce reported household income are reviewable and can be reversed

Surplus Income vs Consumer Proposal: A Cost Comparison

For many Canadians, the surplus income calculation tips the balance toward a consumer proposal:

Scenario: Single person earning $3,500/month net with $50,000 in unsecured debt.

Bankruptcy path:

• Surplus: ($3,500 - $2,543) x 50% = $478.50/month
• Duration: 21 months (first-time, with surplus)
• Total surplus payments: $478.50 x 21 = $10,048.50
• Plus base costs: ~$1,800
• Total: ~$11,850

Consumer proposal path:

• Typical offer: 30-40% of $50,000 = $15,000-$20,000
• Payment: $280-$370/month over 5 years (or less if higher payments are possible)
• Total: $15,000-$20,000

The consumer proposal costs somewhat more in total but:

• You keep all your assets (no exemption concerns)
• Credit report notation clears 3 years after completion (vs. 6-7 years after bankruptcy discharge)
• No monthly income reporting requirements
• Payments are fixed — income increases do not raise your payments

For many people, the consumer proposal is the better overall value despite the higher total payment.

Key Takeaways

• Surplus income is 50% of your net household income above the OSB threshold for your family size
• The $200/month buffer means small surpluses do not trigger payments
• Surplus income extends first-time bankruptcy from 9 to 21 months
• Household income includes your spouse's earnings, even if they are not bankrupt
• Allowable deductions (child care, medical, support payments) can reduce or eliminate surplus
• Compare the total cost of bankruptcy with surplus income to the cost of a consumer proposal — the proposal may be more economical
• Always report income honestly — concealment is a criminal offence and jeopardises your discharge

A Licensed Insolvency Trustee can calculate your exact surplus income obligation during a free consultation. This number, more than any other, determines whether bankruptcy or a consumer proposal is the right choice for your situation.