Surplus Income: The $200 Line That Decides How Long a Bankruptcy Lasts
A first personal bankruptcy in Canada can end at nine months or at twenty-one, and a single test decides which. It is called surplus income, and it does two jobs at once. It sets what a bankrupt pays into the estate every month, and it sets the date the automatic discharge arrives. Both turn on a threshold of $200 a month.
The figure measured against that threshold is available monthly income, which comes after statutory payroll deductions and a list of non-discretionary expenses and sits a long way below gross pay, so no dollar figure below is a salary.
The Act sets the frame and a directive fills it in
The governing provision is section 68 of the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3, current to October 19, 2026 and last amended June 20, 2026). Subsection 68(1) hands the detail to the Superintendent of Bankruptcy, who “shall, by directive, establish in respect of the provinces or one or more bankruptcy districts … the standards for determining the surplus income of an individual bankrupt and the amount that a bankrupt who has surplus income is required to pay to the estate of the bankrupt.” The current instrument is Directive No. 11R2-2026, Surplus Income, issued March 27, 2026 and signed by Superintendent Elisabeth Lang.
Surplus income is a term of art, not a loose way of saying spare money. Section 68(2) defines it as “the portion of a bankrupt individual’s total income that exceeds that which is necessary to enable the bankrupt individual to maintain a reasonable standard of living, having regard to the applicable standards established under subsection (1).”
Total income is defined in the same subsection, and it contains a trap. It “includes, despite paragraphs 67(1)(b) and (b.3), a bankrupt’s revenues of whatever nature or from whatever source that are earned or received by the bankrupt between the date of the bankruptcy and the date of the bankrupt’s discharge, including those received as damages for wrongful dismissal, received as a pay equity settlement or received under an Act of Parliament, or of the legislature of a province, that relates to workers’ compensation”. Paragraph 67(1)(b.3) is the exemption that keeps “property in a registered retirement savings plan, a registered retirement income fund or a registered disability savings plan … or in any prescribed plan” out of the estate. The plan is protected; the withdrawal is not. Money taken out of a registered plan during the bankruptcy counts as total income despite the exemption, which is one of several places where protection from seizure and protection from the surplus income test part company.
That exemption has a second edge: it does not cover “property contributed to any such plan or fund in the 12 months before the date of bankruptcy”. A dollar contributed inside that window falls into the estate, the same dollar contributed thirteen months earlier does not, and contribution timing is what decides it, which is where how an RRSP works starts. A TFSA is not on that list at all, so whatever protection it has comes from the general paragraph before, 67(1)(b), covering property “exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides”. That is provincial law.
Total income runs the other way too. It “does not include any amounts received … as a gift, a legacy or an inheritance or as any other windfall”, though section 67(1)(c) still sweeps those in as property, making the estate comprise anything “that may be acquired by or devolve on the bankrupt before their discharge”, including the tax refund for the year of the bankruptcy. Not income, but the same destination by a different road.
Two rounds of deductions come off before the test runs
Paragraph 5(2) of the Directive starts with the family unit’s incomes and takes off, for a salaried employee, “minimum statutory remittances (income tax, pension and employment insurance deductions) and other mandatory deductions paid”. For the self-employed it takes off business expenses, deductions permitted by the Income Tax Act, minimum statutory remittances and instalment payments made. That produces total monthly income.
Paragraph 5(3) then subtracts the non-discretionary expenses to arrive at available monthly income: child support payments, spousal support payments, child care expenses, expenses associated with a medical condition, court-imposed fines or penalties in the process of being paid, expenses permitted by the Income Tax Act that are a condition of employment, any other debt where a stay has been lifted by the Court and a recourse authorized, and interest paid on debts that are not dischargeable under section 178(1)(g) of the Act. Because support payments, child care and medical costs all come off before the test runs, two households on identical gross pay can land on opposite sides of the line.
Only then does paragraph 5(5) do the subtraction that produces surplus income: the standard for the family unit’s size comes off the family unit’s available monthly income.
The 2026 standards are a scaled LICO, one figure per family size
Appendix A of the Directive sets the standards. Their derivation is stated on the page: “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 with 500,000 people and over. The 2026 standards are updated by applying a 2.16% adjustment to the 2025 LICO to reflect the 2026 CPI (Consumer Price Index) expectation.” The equivalent note a year earlier applied a 2.31% adjustment to the 2024 LICO.
| Persons in family unit | 2026 standard, per month | 2025 standard, per month |
|---|---|---|
| 1 | $2,716 | $2,666 |
| 2 | $3,381 | $3,318 |
| 3 | $4,157 | $4,080 |
| 4 | $5,047 | $4,953 |
| 5 | $5,724 | $5,618 |
| 6 | $6,456 | $6,336 |
| 7 or more | $7,188 | $7,054 |
Appendix A, Directive No. 11R2-2026, page 11, beside Appendix A of Directive No. 11R2-2025, page 11.
Row by row, the 2026 standard is between 1.875% and 1.900% above the 2025 standard on our arithmetic, the seven ratios differing from each other by 0.024 of a percentage point. For a family unit of one it is 1.875%, and $2,716 a month is $32,592 a year of available monthly income.
That is a smaller rise than the 2.16% in the note, and both are right, because each year’s adjustment applies to that year’s LICO rather than to the previous year’s standard. Work each standard back through its own stated adjustment and the base itself moved between 2.025% and 2.049% across the seven rows: $2,716 divided by 1.0216 is $2,658.57, against $2,666 divided by 1.0231, or $2,605.81, which is 2.025% apart. A forecast adjustment larger than the base’s own movement in one year shows up as a smaller headline increase in the next.
Section 68(1) permits different standards by province or by bankruptcy district. Appendix A sets one figure per family size for the whole country.
Below $200 nothing is payable, at $200 half of it is
Paragraph 5(6): “Where the bankrupt has monthly surplus income of less than $200, the bankrupt is not required to pay any amount to the bankrupt’s estate under this Directive.”
Paragraph 5(7): “Subject to the family situation adjustment described in paragraph 6(1) of this Directive and subject to an adjustment to the surplus income calculation based on average monthly income described under paragraph 7 or 8 of this Directive, where the bankrupt has monthly surplus income equal to or greater than $200, the bankrupt is required to pay 50 percent of the monthly surplus income to the bankrupt’s estate.” Both qualifiers in that opening do real work, and the second half of this article is largely about them.
Then the length of the bankruptcy attaches itself to the same switch. Section 168.1(1)(a) discharges a first-time bankrupt automatically “(i) on the expiry of 9 months after the date of bankruptcy unless, in that 9-month period, an opposition to the discharge has been filed or the bankrupt has been required to make payments under section 68 to the estate of the bankrupt, or (ii) on the expiry of 21 months after the date of bankruptcy unless an opposition to the discharge has been filed before the automatic discharge takes effect”. For someone who has been bankrupt once before, section 168.1(1)(b) sets the same pair at 24 months and 36 months.
That subsection applies, in its opening words, to “an individual bankrupt other than a bankrupt referred to in subsection 172.1(1)”: a bankrupt with $200,000 or more of personal income tax debt amounting to 75% or more of total unsecured proven claims. The same nine and twenty-one month marks appear for them, but as the earliest date a discharge hearing may be held rather than as an automatic discharge, and at that hearing subsection 172.1(3) requires the court, subject to the factors in 172.1(4), to refuse the discharge, suspend it or attach conditions to it.
| Available monthly income | Surplus | Monthly payment | Discharge | Total paid to the estate |
|---|---|---|---|---|
| $2,915 | $199 | $0 | 9 months | $0 |
| $2,916 | $200 | $100 | 21 months | $2,100 |
| $3,000 | $284 | $142 | 21 months | $2,982 |
| $3,216 | $500 | $250 | 21 months | $5,250 |
| $3,716 | $1,000 | $500 | 21 months | $10,500 |
A family unit of one, first-time bankrupt. Our arithmetic on Directive No. 11R2-2026, paragraphs 5(5) to 5(7) and Appendix A, page 11, and BIA s.168.1(1)(a).
One dollar of available monthly income separates the first two rows. For a first-time bankrupt that dollar is worth $2,100 and twelve months. For someone who has been bankrupt once before, it means thirty-six months of payments instead of a discharge at twenty-four, which is $3,600 and a further twelve months.
Total paid to the estate over a first-time personal bankruptcy, against the family unit’s available monthly income, for a family unit of one. Source: OSB Directive No. 11R2-2026, paragraphs 5(6) and 5(7) and Appendix A, page 11, and BIA s.168.1(1)(a). Our arithmetic on those rules.
The $200 margin sits on top of each standard, so the line moves with family size while the payment at the line, $100 a month, and the cost of crossing it for a first-time bankrupt, $2,100, do not.
| Persons in family unit | Available income with nothing payable, up to | The line, available income | Available income per year at the line |
|---|---|---|---|
| 1 | $2,915 | $2,916 | $34,992 |
| 2 | $3,580 | $3,581 | $42,972 |
| 3 | $4,356 | $4,357 | $52,284 |
| 4 | $5,246 | $5,247 | $62,964 |
| 5 | $5,923 | $5,924 | $71,088 |
| 6 | $6,655 | $6,656 | $79,872 |
| 7 or more | $7,387 | $7,388 | $88,656 |
Available monthly income, not gross pay. Our arithmetic on Appendix A, page 11 and paragraphs 5(6) and 5(7) of Directive No. 11R2-2026.
The number that counts is an average, not a snapshot
Paragraph 7(1) requires the test at least twice: at the outset on Form 65, and then “during the eighth month in the case of a first-time bankrupt and during the 23rd month in the case of a second-time bankrupt.” Paragraph 7(2) says the trustee calculates the bankrupt’s average monthly income over the bankruptcy and uses that average to fix the amount.
That is why a mid-bankruptcy change in income reaches backwards. Two of the Superintendent’s own worked examples, in Appendix B of the Directive at pages 12 to 20, show it biting in each direction.
In Example 2, a single first-time bankrupt starts at $2,500 a month, under the $2,716 standard, so nothing is payable. In month five the income rises to $4,500. The eighth-month averaging takes $2,500 for four months plus $4,500 for three, which is $23,500 over seven months, or $3,357.14. Less the standard that leaves $641.14 of surplus income and a payment of $320.57 a month. The Directive then requires the arrears, nine months of $320.57, and under paragraph 7(3) “the bankrupt will be required to continue to make payments under section 68 for an additional 12 months before being eligible for an automatic discharge under section 168.1 of the Act.” On the Directive’s own figures that is 21 payments of $320.57, which is $6,731.97 on our arithmetic, where before the raise the answer was zero.
Example 3 runs the other way. At $3,500 a month there is $784 of surplus income and a $392 payment. Income falls to $1,000 in month five. The eighth-month average is $17,000 over seven months, or $2,428.57, below the standard. The requirement ends, and under paragraph 7(4) the bankrupt is eligible for automatic discharge at the expiry of the ninth month.
Note the asymmetry, which has three legs. Arrears reach backwards, as Example 2 shows. Paragraphs 7(8) and 8(5) provide that where the averaging later shows a smaller amount was owed, the trustee “is not required to return to the bankrupt any payments” already made. And the clock does not reverse: paragraph 7(3) goes on, “If there is a further material change in the bankrupt’s financial situation, the LIT shall redetermine whether the bankrupt has surplus income, but the bankrupt is not eligible for an earlier discharge, subject to an application under subsection 168.1(2) of the Act.” A redetermination can lower the payment. It does not hand back the twelve months, and the only exit, subsection 168.1(2), is an application to the court that takes the bankrupt out of the automatic regime altogether. The test looks backwards when that costs the bankrupt and forwards when it does not.
Example 5 sets a lump sum against the same shortfall logic. Monthly income of $1,000 is $1,716 below the standard, so the bankrupt keeps $1,716 for each of nine months, which is $15,444 of a $20,000 award, and $4,556 goes to the estate.
The family unit changes the answer, and so does silence
Paragraph 6(1) scales the payment to the bankrupt’s share of the household: the amount “shall be adjusted to the same percentage as the bankrupt’s portion of the family unit’s available monthly income.” In Example 1 the bankrupt has $3,300 of available monthly income and the other member of a two-person family unit has $1,000, so the family unit has $4,300. Less the $3,381 standard, total monthly surplus income is $919. The bankrupt’s share of the family unit’s available income is 76.74%, so $919 multiplied by that share is $705.24, and the payment is half of it, $352.62. The Directive prints that share to two decimal places before multiplying; at full precision the intermediate figure would be $705.28.
Paragraph 6(2) deals with a non-bankrupt spouse who “refuses or neglects to divulge his or her income or expenses”. The trustee then applies 50 percent of the applicable standard, and halving the standard raises the surplus, so the silence costs the bankrupt money. Example 6 makes the size of it plain: a family unit of four, with the bankrupt’s available income at $3,000, faces a standard of $2,523.50 instead of $5,047, producing $476.50 of surplus income and a payment of $238.25 a month. On the full standard there would have been no surplus at all. Paragraph 6(3) treats a non-spouse family member who refuses to disclose as not being a member of the family unit, which shrinks the family size and with it the standard.
Missed payments are a discharge problem, not a billing problem
Paragraphs 7(6), 7(7), 8(3) and 8(4) say the trustee shall oppose the discharge where the bankrupt fails to provide the information needed for the calculation, or has not paid the required amount. Shall, not may. On the statutory side, section 173(1)(m) makes “the bankrupt has failed to comply with a requirement to pay imposed under section 68” one of the facts on which a discharge is opposed, and section 170.1(1) sends an opposition founded solely on that ground, or on the one beside it, to mediation before it reaches court.
The obligation does have an end, though not one beyond the court’s reach. Paragraph 9 discontinues it when the bankrupt is discharged, “or as otherwise ordered by the Court”, and where an opposition has been filed it ceases “on the day on which the bankrupt would have been automatically discharged had the opposition not been filed, or as otherwise ordered by the Court”. The Act speaks only to that second, narrower case: section 68(16) ends the obligation on the same day, “but nothing in this subsection precludes the court from determining that the bankrupt is required to pay to the estate an amount that the court considers appropriate.”
What the line is worth knowing before a filing
The standards are arithmetic on a LICO-derived table. The income that goes into them and the amount that comes out are not. Section 68(3) requires the trustee to determine surplus income “having regard to the applicable standards and to the personal and family situation of the bankrupt”, and the Directive tells trustees they “must use their professional judgment in exercising their duty to apply due diligence when determining the bankrupt’s average monthly income.” Where the amount is disputed the Act routes it, from an official receiver’s recommendation under subsection 68(5) through mediation at the trustee’s or a creditor’s request under 68(6) and 68(7) to a court order under 68(10) that the court can amend later. The hinge itself is not arguable: one dollar a month of available income moves the whole bankruptcy from nine months and nothing to twenty-one months and $2,100.
All of this is bankruptcy, and a consumer proposal is the other route. It is the one most consumer filings take: the Office of the Superintendent of Bankruptcy reports that “the proportion of proposals in consumer insolvencies decreased to 78.0% during the 12-month period ending August 31, 2026, down from 78.8% during the 12-month period ending August 31, 2025”, a period in which consumer filings were 96.8% of all insolvency filings. Section 68 applies to a bankrupt, so the threshold and the standards here are not the arithmetic of a proposal offer. What the two routes can be compared on is what each one does to a particular debt, which we have set out for the commonest one in what a bankruptcy and a consumer proposal each do to a CRA tax debt.
Both are worth sizing against the third option, which for many people is not filing at all and living with the collection effort instead. That one runs on a different clock, and it is the ten-year collections clock that limits how long a tax debt stays collectible.
Every figure here is the rule rather than a determination. On any particular file the amount is fixed by a licensed insolvency trustee under subsection 68(4), on that file’s own income and expense statements.
Standards as of Directive No. 11R2-2026, issued March 27, 2026, whose cover letter adds that “broader changes to the Directive will be coming at a later date.” Statutory text as of the Bankruptcy and Insolvency Act current to October 19, 2026, last amended June 20, 2026.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Every quotation in this article is verbatim from the documents named in it. The Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, is the Justice Laws consolidation current to October 19, 2026 and last amended on June 20, 2026, and supplies s.67(1), s.68 in full including subsections (1), (2), (3), (5), (6), (7), (10), (12) and (16), s.168.1, s.170.1, s.172.1 and s.173(1)(m). The standards, the $200 threshold, the 50 percent share, the family situation adjustment, the averaging rules and all five worked examples are from Directive No. 11R2-2026, Surplus Income, issued by the Office of the Superintendent of Bankruptcy on March 27, 2026, at Appendix A page 11 and Appendix B pages 12 to 20. The 2025 comparatives are from Directive No. 11R2-2025, issued March 31, 2025, Appendix A page 11. The Superintendent’s notice that the HTML version of a directive is not official was followed: the three standards the official PDF states in its own worked examples, $2,716, $3,381 and $5,047, were confirmed in the PDF before the full table was used, because the Appendix A table on page 11 of the PDF is an image and yields no text. Our own arithmetic is labelled as ours wherever it appears: the year-equivalents of the monthly standards, the row-by-row increases of 1.875% to 1.900%, the implied movement of the LICO base of 2.025% to 2.049%, the line at each family size, and every total paid to the estate. Before any derived figure was used, seven control tests were run: our implementation of paragraphs 5 to 8 reproduces all five of the Superintendent’s arithmetical worked examples to the cent, the Appendix A table is re-read from the source file and compared against the engine at run time, three of its rows are confirmed present in the official PDF, and the 2026 standards divided by the 2025 standards give the same ratio to within 0.024 of a percentage point on all seven family sizes, which is what a single scale factor on one column looks like and what validates the rows the PDF never states in text. The proposal share is from the Office of the Superintendent of Bankruptcy, Insolvency Statistics in Canada, August 2026, covering the 12-month period ending August 31, 2026. The chart is drawn from the same engine as the article, so it cannot disagree with it. No figure in this piece is estimated, forecast or taken from an aggregator.
