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Bankruptcy and Child Support – Everything You Have to Know

Declaring bankruptcy really isn’t the end of the world, but it does have significant consequences that will impact your finances in the future. I’ve found that most of the time, focusing efforts on building a bright future is the best way for folks to manage their bankruptcy and succeeding recovery. To do this, however, individuals need to comprehend precisely what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most productive way possible.

 

One of the most routine questions I get asked pertains to how bankruptcy will influence child support payments. Whilst this topic may seem relatively straightforward, I’ve found that it creates a lot of misunderstanding so today we’re going to take a closer look and try to clear up some of that confusion.

 

Does bankruptcy cover child support debts?

Although bankruptcy releases you from a 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 call the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment given by the DHS is incorrect, you can dispute this.

 

How is child support determined?

The DHS is responsible for managing and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS review 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 expected income for the upcoming year. This emphasises the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be presented to the DHS immediately.

 

Income contributions to your bankrupt estate

An income threshold is utilised to verify if a bankrupt person 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 have a bearing on your income threshold. The following table features the specific threshold limits as of September 2017:

 

The DHS define a dependent as anyone who lives with you most of the time and earns no more than $3,539 yearly.

 

Assuming you earn over the income threshold, your trustee would calculate 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 settle the debts in your bankrupt estate.

 

For example, if you earn $110,000 every year before tax, you’ll probably be paying close to $30,500 every 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 calculate your bankruptcy payments as follows:.

 

($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or around $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 every year, your assessable income would be reduced 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 calculate your bankruptcy payments as follows:.

 

($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or about $361 monthly).

 

Summary

Whilst blending family law and bankruptcy can be slightly confusing, there’s always somebody to help you at Bankruptcy Experts Canberra. 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 additional information: www.bankruptcyexpertscanberra.com.au