In this guide
How surplus income works
If you’re considering filing for bankruptcy, your income determines how much you will pay. The more you earn, the more bankruptcy costs.
Surplus income is the amount your family earns above the limits the federal government sets during bankruptcy. The Office of the Superintendent of Bankruptcy sets these limits each year so you and your family can keep a reasonable standard of living while you’re bankrupt.
Earn more than the threshold, and you make surplus income payments to your Licensed Insolvency Trustee (LIT). The LIT passes that money to your creditors.
Source: Government of Canada – Bankruptcy and Insolvency Act, Section 68
How surplus income affects your bankruptcy
Surplus income raises both the cost and the length of your bankruptcy. You won’t be discharged until you’ve made every payment you owe.
If your income rises during bankruptcy, you pay more into your estate. If it falls, you pay less. Your Licensed Insolvency Trustee reviews your income throughout and adjusts the amount.
The threshold sets the line. Stay below it, and a first bankruptcy ends in nine months. Cross it by $200 or more, and that first bankruptcy stretches to 21 months.
Surplus income limits for 2026
The Office of the Superintendent of Bankruptcy sets the surplus income thresholds every year. They come from Statistics Canada before-tax Low Income Cut-offs (LICO) for urban areas with 500,000 people or more.
For 2026, the thresholds rose 2.16% from 2025 to reflect the expected rise in the cost of living.
| Family Size | Monthly Income Threshold |
|---|---|
| 1 | $2,716 |
| 2 | $3,381 |
| 3 | $4,157 |
| 4 | $5,047 |
| 5 | $5,724 |
| 6 | $6,456 |
| 7+ | $7,188 |
These thresholds are updated annually to reflect inflation. Check the current year’s limits before filing.
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How to calculate surplus income
The Bankruptcy and Insolvency Act defines surplus income, and the exact figure depends on your circumstances. Your household’s net monthly income after tax and deductions, the number of dependents you have, your non-discretionary expenses, and your share of the household income all feed into it.
To calculate surplus income, take your household’s available monthly income after tax, deductions and expenses, then subtract the threshold for your family size. You pay half of what’s left into your estate each month.
What counts as a non-discretionary expense?
Non-discretionary expenses are costs that the government lets you subtract before the calculation. They include child support and spousal support payments, child care, costs tied to a medical condition, and court-imposed fines you’re paying off.
They also cover expenses required as a condition of employment under the Income Tax Act, interest on debts that survive bankruptcy, and any other debt where the court has lifted a stay of proceedings.
How much of the surplus do you pay?
Your payment is prorated to your share of the household income. If you earn 60% of your household’s income, you pay based on 60% of the surplus.
What you pay can shift month to month, depending on the hours you work or time off sick. Each month, you send your trustee proof of income and receipts for certain expenses so the amount can be set accurately. The Canada Child Benefit doesn’t count as income.
Source: Government of Canada – Directive No. 11R2-2025, Section 5
You pay half of any income above the threshold, adjusted for your share of household earnings.
Surplus income calculation example
The following example is for a family unit of two:
| Description | Amount |
|---|---|
| Bankrupt’s available monthly income | $2,800 |
| Other family unit member’s available monthly income | $1,000 |
| Family unit’s available monthly income | $3,800 |
| Threshold for a family unit of two | $3,381 |
| Total monthly surplus income | $419 |
| Family Situation Adjustment (2800 ÷ 3,800 = 73.68%. $482 × 73.68% = $355.14) | $308.72 |
| Payment required from bankrupt ($355.14 × 50% = $177.57) | $154.36 |
Here’s how it breaks down. You earn $2,800 a month after tax, deductions and non-discretionary expenses. A family member brings in $1,000, so your household’s available income is $3,800.
For a family of two, the 2026 threshold is $3,381, which leaves $419 in surplus income. You contribute about 73.68% of the household income, so your share is $308.72.
You pay half of your share. That’s $154.36 a month, or $3,241.56 over a 21-month bankruptcy.
How long will I make surplus payments?
Surplus income extends your bankruptcy and delays your discharge.
If it’s your first bankruptcy and your surplus income is under $200 a month, you’re eligible for an automatic discharge after nine months.
If your monthly surplus income is $200 or more, a first bankruptcy runs 21 months, and you make surplus income payments the whole time.
A second bankruptcy with surplus income lasts 36 months. If your surplus income payments are high, or you’ve been bankrupt before, a consumer proposal is worth looking at.
Source: Government of Canada – Bankruptcy and Insolvency Act, Section 168.1
Staying below the $200 threshold means nine months to discharge, while exceeding it means 21 months for a first bankruptcy.
What income counts toward surplus income?
Your Licensed Insolvency Trustee counts every source of family income when working out surplus income. The Bankruptcy and Insolvency Act requires you to disclose income from every member of your family unit.
Most income counts. Employment wages and salaries, self-employment and business income, commissions, overtime and bonuses, pension income, Employment Insurance benefits, and any spousal or child support you receive all go into the calculation.
Some income is left out. The Canada Child Benefit, GST/HST credits and provincial child benefits don’t count toward surplus income.
Your family unit is anyone who lives in your household and benefits from your income or shares expenses. Someone who lives elsewhere can still count if they contribute to or benefit from your household finances.
If your spouse won’t disclose their income, the trustee uses 50% of the threshold for your family size instead.
What happens if your income changes
Your income can move up or down during bankruptcy. The surplus income calculation handles this by averaging your income over the whole bankruptcy.
If your income rises, your trustee recalculates surplus income on your new average. A raise can trigger payments even if you started below the threshold. You’d owe the surplus for the earlier months, plus payments for an extra 12 months into your estate.
If your income falls, your surplus income payments can drop or stop. Because the trustee averages income across the whole bankruptcy, a short dip often makes little difference to what you owe overall.
If you earn on commission, work seasonally, or run your own business, your income is harder to predict. Your trustee averages everything you receive during bankruptcy. Three commissions totalling $14,000 over seven months come to a $2,000 monthly average.
Report any income change to your trustee right away. Hiding a change can delay your discharge.
Monthly reporting requirements
Every month you’re bankrupt, you send your trustee proof of your income and expenses. This lets your Licensed Insolvency Trustee set your surplus income payment accurately.
Each month, you’ll provide pay stubs from all jobs, bank statements showing deposits, proof of any government benefits, receipts for non-discretionary expenses, and, if you’re self-employed, records of your business income.
Documents required monthly:
- Pay stubs from all employment
- Bank statements showing deposits
- Proof of government benefits received
- Receipts for non-discretionary expenses
- Self-employment income records (if applicable)
Your trustee uses these documents to complete Form 65, the Monthly Income and Expense Statement. The LIT checks everything you provide and can ask family members about their earnings and expenses.
Be straight with your trustee. Incomplete or inaccurate reporting can push your trustee to oppose your discharge.
If you disagree with a surplus income calculation, you can ask for mediation through the Office of the Superintendent of Bankruptcy.
Surplus income vs. consumer proposal
A consumer proposal is often the better route if you expect high monthly surplus income payments. Knowing the differences helps you decide.
| Factor | Bankruptcy with Surplus Income | Consumer Proposal |
|---|---|---|
| Payment amount | Varies with income | Fixed when accepted |
| Duration | 21 months (first bankruptcy with surplus) | Up to 60 months |
| Income changes | Payments increase if income rises | Payments stay the same |
| Monthly reporting | Required throughout | Not required |
| Assets | Non-exempt assets at risk | Keep your assets |
In a consumer proposal, your payment is set at the start and stays fixed for the life of the proposal. If your income goes up after your creditors accept it, your payments don’t change.
Higher earners often pick a consumer proposal for that certainty. Creditors usually collect more than they would from bankruptcy with surplus income, so they’re more likely to accept.
In 2025, 140,457 Canadians filed a consumer insolvency, up 2.3% from 2024. 78.4% chose a consumer proposal over bankruptcy.
Source: Office of the Superintendent of Bankruptcy – Insolvency Statistics in Canada, December 2025
If you expect your income to rise, a consumer proposal locks in your payments, and there’s no surplus income to pay.
Is bankruptcy right for my income level?
The idea behind surplus income is simple. It wouldn’t be fair for someone to declare bankruptcy, earn a good income, and walk away from their debts. So the more you earn, the more you pay, and the longer you stay bankrupt.
If you have a high income and would owe a surplus in bankruptcy, consider a consumer proposal instead. A consumer proposal has no surplus income payments.
Licensed Insolvency Trustees are the only professionals authorized by the federal government to administer consumer proposals and bankruptcies in Canada. A consultation with an LIT shows you exactly what you’d pay under each option.
Frequently asked questions
Does surplus income apply to a consumer proposal?
No. Surplus income only applies in bankruptcy. In a consumer proposal, your payment is fixed when creditors accept it, so a rising income doesn’t increase what you pay.
What happens if I don’t report an income increase?
Your trustee can oppose your discharge. You’re required to report income changes right away, and hiding a raise delays your release from bankruptcy. You’d also have to pay back the surplus you owed for any earlier months.
Is the Canada Child Benefit counted as surplus income?
No. The Canada Child Benefit, GST/HST credits and provincial child benefits are all excluded. Employment income, self-employment income, pensions, Employment Insurance, and support you receive do count.
How much surplus income can I have before I pay?
You pay nothing if your monthly surplus income is under $200. At $200 or more, you pay half of your surplus income, adjusted for your share of household earnings.
Does surplus income make my bankruptcy longer?
Yes. A first bankruptcy with no surplus income ends after nine months. With surplus income of $200 or more, it runs 21 months. A second bankruptcy with surplus income lasts 36 months.
Can I avoid surplus income payments?
A consumer proposal has no surplus income payments. If your income is high enough to trigger surplus payments in bankruptcy, a proposal often costs less overall and locks your payment in place.
Get advice on your income and your options
Surplus income changes both what you pay and how long bankruptcy lasts. A Licensed Insolvency Trustee can run your numbers and show you what you’d pay under a bankruptcy and a consumer proposal. The first consultation is free.
