Bankruptcy and Child Support – Everything You Need to Know

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Bankruptcy and Child Support – Everything You Need to Know

Declaring bankruptcy most certainly isn’t the end of the world, but it does have severe consequences that will impair your finances in the coming years. I’ve discovered that in many cases, focusing efforts on creating a bright future is the best way for individuals to deal with their bankruptcy and consecutive recovery. To do this, however, folks must be aware of 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 affect child support payments. While this topic may appear to be 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 resolve 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 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 the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you believe the assessment given by the DHS is wrong, you can contest this.

 

How is child support gauged?

The DHS is in charge of supervising and working with separated parents on child support assessments. To calculate how much child support you must pay, the DHS evaluate both your income and your care percentage of the children involved. By using your last tax return as a benchmark, the DHS will use these figures to ascertain your estimated income for the upcoming year. This showcases 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 determine if a bankrupt individual can afford to contribute some of their income to settle 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 influence your income threshold. The following table reveals 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 each 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

 

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

 

For instance, if you earn $110,000 annually before tax, you’ll most likely be paying around $30,500 every 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 calculate your bankruptcy payments as follows:.

 

($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or roughly $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 every 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 figure out your bankruptcy payments as follows:.

 

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

 

Summary

Whilst combining family law and bankruptcy can be a little confusing, there’s always someone to assist you at Bankruptcy Experts Sunshine Coast. If you have any further concerns relating to bankruptcy and child support payments, or you just need some friendly advice, reach out to our team on 1300 795 575, or alternatively visit our website for additional information: www.bankruptcyexpertssunshinecoast.com.au

 

By | 2018-09-17T04:59:53+00:00 September 17th, 2018|Bankruptcy, Liquidation|0 Comments

About the Author:

Director of Fresh Start Solutions and specialises in helping people free themselves from overwhelming debt. Whether it's Bankruptcy, Liquidation, Insolvency Advice or simply General Debt Advice.