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 considerable implications that will impair your finances in the years to come. I’ve found that in many cases, focusing efforts on creating a bright future is the best way for folks to deal with their bankruptcy and subsequent recovery. To do this, however, individuals need to appreciate exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most routine questions I get asked relates to how bankruptcy will influence child support payments. Even though this topic may appear to be rather straightforward, I’ve found that it creates a lot of misunderstanding so today we’re going to take a closer look and attempt to clear up some of that confusion.


Does bankruptcy cover child support debts?

While 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 declare bankruptcy, it will not be released in bankruptcy so it’s best to consult with the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you feel the assessment provided by the DHS is inaccurate, you can challenge this.


How is child support figured out?

The DHS is responsible for regulating and dealing with separated parents on child support assessments. To establish how much child support you must pay, the DHS consider 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 numbers to figure out your anticipated income for the coming year. This showcases the importance of keeping your tax returns up to date, and any changes to your circumstances should be relayed 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 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 a bearing 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 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


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


For instance, if you earn $110,000 each year before tax, you’ll likely be paying roughly $30,500 each 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 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 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 calculate your bankruptcy payments as follows:.


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



Although mixing family law and bankruptcy can be slightly complicated, there’s always someone to help you at Bankruptcy Experts Maitland. If you have any more queries relating to bankruptcy and child support payments, or you just need some friendly advice, phone our team on 1300 795 575, or alternatively visit our website for additional information:


By | 2018-09-19T01:54:01+00:00 September 19th, 2018|Bankrupt, blog|0 Comments

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