Most people understand that when you file for bankruptcy, some of your assets, such as property, investments, or vehicle equity, may need to be sold, with the proceeds distributed to your creditors. But there’s another important factor that can affect how much you pay in bankruptcy: surplus income.
Depending on your income level and household size, you may be required to make additional payments to your bankruptcy estate. In this article, we’ll explain how surplus income works, how it’s calculated, and what the 2025 OSB limits mean for you.
What Is Surplus Income?
When you file for bankruptcy in Canada, your financial situation is reviewed throughout the process—not just at the time you file.
If your average monthly income is higher than the government-set limit for your household size, you may need to make surplus income payments on top of surrendering any non-exempt assets.
These payments ensure that higher-income earners contribute a fair amount to their creditors while still maintaining a reasonable standard of living.
All surplus income payments must be made through your Licensed Insolvency Trustee (LIT), who distributes the funds to your creditors in accordance with the Bankruptcy and Insolvency Act (BIA).
Surplus income limits are adjusted every year to reflect inflation and the limits are published by the Office of the Superintendent of Bankruptcy (OSB).
2026 Surplus Income Limits
The table below shows the monthly net income thresholds that determine whether you’ll have to pay surplus income in 2026.
These figures are set by the Government of Canada under Directive No. 11R2 (2025 Update).
| Family Size | Monthly Net Income Limit (2025) |
| 1 person | $2,716 |
| 2 persons | $3,381 |
| 3 persons | $4,157 |
| 4 persons | $5,047 |
| 5 persons | $5,724 |
| 6 persons | $6,456 |
| 7 or more persons | $7,188 |
If your average monthly family income exceeds the amount listed above, you may be required to pay up to 50% of the excess income to your trustee each month.
How Surplus Income Affects the Length of Bankruptcy
If your average surplus income is less than $200 per month, your bankruptcy can usually be discharged after:
- 9 months – for first-time bankruptcies
- 24 months – for second-time bankruptcies
However, if your average surplus income is $200 or more per month, the bankruptcy period is extended to:
- 21 months – for first-time bankruptcies
- 36 months – for second-time bankruptcies
This ensures that those who can afford to pay more will contribute a fair portion to their creditors before discharge.
Non-Discretionary Expenses
Not every expense you pay each month is considered when determining surplus income. The Bankruptcy and Insolvency Act allows for specific deductions called non-discretionary expenses. These can be subtracted from your household’s total monthly income before your surplus income is calculated.
Non-discretionary expenses can include:
- Child or spousal support payments required by law
- Childcare expenses necessary for employment
- Certain medical expenses not covered by insurance
- Court-imposed fines or penalties
- Approved employment-related expenses
Your Licensed Insolvency Trustee will review any qualifying expenses to ensure they’re properly deducted before your surplus income obligation is determined.
(Source: Government of Canada – Directive No. 11R2, 2025)
How Surplus Income Is Calculated
While the formula is simple—50% of the income earned above your threshold—the actual calculation can get complex when there are multiple household members, variable income, or deductible expenses.
1. Household Income
Surplus income is calculated based on your total household net income, not just your own. That means if your spouse or partner earns income and contributes to the household, their income must be included.
However, only your share of the household income is used to determine how much of the surplus you pay.
For example:
If you earn 60% of your household income, you’re responsible for 60% of the total surplus income amount.
2. Income Increases During Bankruptcy
If your income rises partway through your bankruptcy, your trustee averages your income over the entire bankruptcy period.
This helps smooth out temporary increases and ensures your payments reflect your average ability to pay, rather than just a single month’s higher income.
3. Lump-Sum Payments
Sometimes, you may receive a one-time payment during bankruptcy, such as a legal settlement or retroactive employment income.
How lump-sum payments are treated is highly dependant on the type of payment that is being received. It may be considered as income and treated in accordance with the surplus income rules, or it may be treated as an asset. If you are expecting a lump-sum payment in the near future, be sure to disclose this to your trustee and they can assist you in understanding how this may be treated in a bankrutpcy to assist in your decision on how to proceed.
Why Surplus Income Matters
Surplus income can significantly affect both the cost and duration of your bankruptcy. Many Canadians are surprised to learn that earning even a modest amount above the OSB limit can double the length of their bankruptcy.
That’s why it’s crucial to work closely with your Licensed Insolvency Trustee, who can help you track your income and adjust for changes in your household situation.
You can review the full Government of Canada guidelines here:
👉 Directive No. 11R2 (2025): Surplus Income
Considering Alternatives to Bankruptcy
If you’re earning an income above the surplus limits or expect your earnings to rise, a consumer proposal may be a better option.
A consumer proposal allows you to:
- Keep your assets
- Make one fixed monthly payment for up to 5 years
- Avoid paying extra if your income increases
- Stop collection calls and wage garnishments immediately
Unlike bankruptcy, your payments don’t change based on your income level once the proposal is accepted. This can provide stability and make budgeting much easier.
Getting Professional Guidance
At David Sklar & Associates, our Licensed Insolvency Trustees in Ontario will review your full financial picture including your household income, assets, and expenses, to determine whether bankruptcy or a consumer proposal is the best path forward.
We’re here to help you reduce your debt, protect your assets, and move toward a fresh financial start with compassion and understanding.
Learn more about your options on the official Government of Canada bankruptcy website or speak directly with a Licensed Insolvency Trustee today.
