Bankruptcy and Child Support – Everything You Have to Know

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Bankruptcy and Child Support – Everything You Have to Know

Declaring bankruptcy certainly isn’t the end of the world, but it does have meaningful repercussions that will impair your finances in the years to come. I’ve discovered that most of the time, focusing efforts on creating a bright future is the best way for people to manage their bankruptcy and subsequent recovery. To do this, however, individuals need to understand precisely what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most productive way possible.

 

One of the most common questions I get asked relates to how bankruptcy will affect child support payments. Even though this topic may seem pretty straightforward, I’ve found that it causes a lot of misunderstanding so today we’re going to take a closer look and try to resolve some of that confusion.

 

Does bankruptcy release child support debts?

Whilst bankruptcy releases you from a range 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 speak to the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you believe the assessment provided by the DHS is wrong, you can challenge this.

 

How is child support gauged?

The DHS is accountable for managing and dealing with separated parents on child support assessments. To calculate 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 numbers to calculate your anticipated income for the forthcoming year. This showcases the importance of keeping your tax returns up to date, and any alterations to your circumstances should be declared to the DHS immediately.

 

Income contributions to your bankrupt estate

An income threshold is utilised to determine if a bankrupt person can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, factors 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 features the related threshold limits as of September 2017:

 

The DHS define a dependent as anyone who lives with you most of the time and earns below $3,539 every year.

 

Assuming you earn over the income threshold, your trustee would figure out your income contributions to your bankruptcy estate with the following formula:.

 

(assessable income – income threshold amount) ÷ 2

 

As a result, 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 around $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 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 previous example, if you are required to pay $15,000 in child support payments each year, your assessable income would be decreased from $79,500 (income after tax) to $64,500.

 

After providing your trustee with a copy of your child support assessment from the DHS, your trustee would determine your bankruptcy payments as follows:.

 

($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or roughly $361 per month).

 

Summary

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

 

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