Bankruptcy and Child Support – Everything You Have to Know
Declaring bankruptcy definitely isn’t the end of the world, but it does have meaningful consequences that will have an effect on your finances in the years to come. I’ve discovered that in most cases, focusing efforts on developing a bright future is the best way for individuals to manage their bankruptcy and consecutive recovery. To do this, however, individuals have to understand precisely what bankruptcy entails so they can properly budget, plan, and rebuild their wealth in the most productive way possible.
One of the most frequent questions I get asked is related to how bankruptcy will have a bearing on child support payments. While this topic may seem fairly straightforward, I’ve found that it leads to a lot of misunderstanding so today we’re going to take a closer look and attempt to clear up some of that confusion.
Does bankruptcy release child support debts?
Although bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a substantial amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to consult with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you believe the assessment presented by the DHS is wrong, you can dispute this.
How is child support calculated?
The DHS is accountable for managing and dealing with separated parents on child support assessments. To establish how much child support you must pay, the DHS assess both your income and your care percentage of the children involved. By using your previous tax return as a benchmark, the DHS will use these figures to figure out your anticipated income for the coming year. This highlights the benefit of keeping your tax returns up to date, and any alterations to your circumstances should be presented to the DHS immediately.
Income contributions to your bankrupt estate
An income threshold is utilised to determine if a bankrupt individual can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, factors like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will affect your income threshold. The following table features the relevant threshold limits as of September 2017:
The DHS define a dependent as somebody who lives with you most of the time and earns under $3,539 yearly.
Assuming you earn over the income threshold, your trustee would determine your income contributions to your bankruptcy estate with the following formula:.
(assessable income – income threshold amount) ÷ 2
Consequently, every 50 cents you earn over your income threshold will be used to settle the debts in your bankrupt estate.
For instance, if you earn $110,000 each year before tax, you’ll likely be paying about $30,500 each year in tax. Your assessable income would therefore be roughly $79,500. Assuming you have no other income and no dependents live with you at home, your trustee would determine your bankruptcy payments as follows:.
($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or about $986 each month).
Child support contributions.
Your child support contributions are deducted from your taxable income so the more child support you pay, the less money gets contributed to your bankruptcy estate. Using the previous example, if you are required to pay $15,000 in child support payments each year, your assessable income would be reduced from $79,500 (income after tax) to $64,500.
After delivering your trustee with a copy of your child support assessment from the DHS, your trustee would figure out your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or about $361 monthly).
Whilst combining family law and bankruptcy can be slightly perplexing, there’s always someone to help you at Bankruptcy Experts Tablelands. If you have any additional concerns relating to bankruptcy and child support payments, or you just need some friendly advice, get in touch with our team on 1300 795 575, or alternatively visit our website for more information: www.bankruptcyexpertstablelands.com.au