Bankruptcy and Child Support – Everything You Have to Know

//Bankruptcy and Child Support – Everything You Have to Know

Filing for bankruptcy certainly isn’t the end of the world, but it does have major consequences that will impair your finances in the years to come. I’ve found that in most cases, focusing efforts on building a bright future is the best way for folks to manage their bankruptcy and subsequent recovery. To do this, however, people have to be aware of precisely what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most efficient way possible.

One of the most frequent questions I get asked is related to how bankruptcy will have an effect on child support payments. Although this topic may seem fairly straightforward, I’ve found that it causes 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 range of debts, child support is not one of them. If you owe a sizable amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to get in touch with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment delivered by the DHS is wrong, you can challenge this.

 

How is child support gauged?

The DHS is in charge of overseeing and working with separated parents on child support assessments. To figure out 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 measure, the DHS will use these numbers to calculate your estimated income for the upcoming year. This emphasises the importance of keeping your tax returns up to date, and any adjustments to your circumstances should be presented to the DHS as soon as possible.

 

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 an effect on your income threshold. The following table displays 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 annually.

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

 

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

For example, if you earn $110,000 each year before tax, you’ll likely be paying close to $30,500 each 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 roughly $986 per month).

 

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 annually, your assessable income would be reduced 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 about $361 each month).

 

Summary

Although mixing family law and bankruptcy can be slightly complicated, there’s always somebody to assist you at Bankruptcy Advice Adelaide. If you have any additional inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, get in touch with our team on 1300 879 867, or alternatively visit our website for additional information: www.bankruptcy-advice.com.au/Adelaide

 

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