Bankruptcy and Child Support – Everything You Should Know
Declaring bankruptcy certainly isn’t the end of the world, but it does have meaningful implications that will impact your finances in the coming years. I’ve found that in most cases, focusing efforts on creating a bright future is the best way for individuals to manage their bankruptcy and consecutive recovery. To do this, however, people have to understand exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most proficient way possible.
One of the most frequent questions I get asked pertains to how bankruptcy will influence child support payments. Even though this topic may seem fairly 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?
Whilst bankruptcy releases you from a wide range of debts, child support is not one of them. If you owe a considerable amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to connect with the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you feel the assessment provided by the DHS is incorrect, you can challenge this.
How is child support determined?
The DHS is in charge of managing and dealing with separated parents on child support assessments. To determine how much child support you must pay, the DHS examine 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 figure out your estimated income for the forthcoming year. This showcases the value 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 utilised to ascertain if a bankrupt individual can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, variables like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will alter your income threshold. The following table displays the relevant threshold limits as of September 2017:
The DHS define a dependent as a person 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 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 pay off the debts in your bankrupt estate.
As an example, if you earn $110,000 every year before tax, you’ll probably be paying around $30,500 every 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 determine 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 subtracted 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 around $361 per month).
Although mixing family law and bankruptcy can be slightly complex, there’s always someone to assist you at Bankruptcy Experts Tamworth. If you have any more concerns relating to bankruptcy and child support payments, or you just need some friendly advice, get in contact with our team on 1300 795 575, or alternatively visit our website for further information: www.bankruptcyexpertstamworth.com.au