Bankruptcy and Child Support – Everything You Should Know

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Declaring bankruptcy most certainly isn’t the end of the world, but it does have meaningful implications that will have an effect on your finances in the future. I’ve discovered that in many cases, focusing efforts on building a bright future is the best way for people to deal with their bankruptcy and subsequent recovery. To do this, however, folks need to appreciate exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most efficient way possible.

 

One of the most concerning questions I get asked is related to how bankruptcy will have a bearing on child support payments. Whilst this topic may appear to be fairly straightforward, I’ve found that it causes 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 cover child support debts?

Although bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a considerable amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to consult the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is wrong, you can contest this.

 

How is child support measured?

The DHS is in charge of managing and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS assess both your income and your care percentage of the children involved. By using your last tax return as a measure, the DHS will use these figures to determine your estimated income for the coming year. This highlights the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be disclosed to the DHS as quickly as possible.

 

Income contributions to your bankrupt estate

An income threshold is used to ascertain if a bankrupt individual can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, issues like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will have an effect on your income threshold. The following table displays the relevant threshold limits as of September 2017:

 

The DHS define a dependent as someone 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

 

Hence, every 50 cents you earn over your income threshold will be used to pay the debts in your bankrupt estate.

 

As an example, if you earn $110,000 each year before tax, you’ll probably be paying approximately $30,500 each year in tax. Your assessable income would therefore be approximately $79,500. Assuming you have no other income and no dependents live with you at home, your trustee would calculate your bankruptcy payments as follows:.

 

($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or approximately $986 monthly).

 

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 above example, if you are required to pay $15,000 in child support payments annually, your assessable income would be decreased from $79,500 (income after tax) to $64,500.

 

After presenting 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 around $361 per month).

 

Summary

Even though mixing family law and bankruptcy can be slightly confusing, there’s always somebody to assist you at Bankruptcy Experts Penrith. If you have any additional inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, talk to our team on 1300 795 575, or alternatively visit our website for more information: www.bankruptcyexpertspenrith.com.au

 

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