September 19, 2018Comments Closed

Bankruptcy and Child Support – Everything You Need to Know

Posted by:admin onSeptember 19, 2018

Declaring bankruptcy certainly isn’t the end of the world, but it does have major consequences that will impair your finances in the coming years. I’ve discovered that in many cases, focusing efforts on developing a bright future is the best way for individuals to manage their bankruptcy and consecutive recovery. To do this, however, individuals must grasp exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most functional way possible.


One of the most common questions I get asked pertains to how bankruptcy will affect child support payments. Although this topic may appear to be relatively straightforward, I’ve found that it leads to 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?

Although bankruptcy releases you from a wide variety 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 contact the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you think the assessment delivered by the DHS is inaccurate, you can contest this.


How is child support determined?

The DHS is responsible for regulating and dealing with separated parents on child support assessments. To determine how much child support you must pay, the DHS consider both your income and your care percentage of the children involved. By utilising your latest tax return as a benchmark, the DHS will use these numbers to figure out your estimated income for the coming year. This emphasises the importance of keeping your tax returns up to date, and any changes 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 figure out if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, factors like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will affect your income threshold. The following table displays the relevant threshold limits as of September 2017:


The DHS define a dependent as an individual 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 calculate 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 pay 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 every 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 about $986 each 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 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 figure out your bankruptcy payments as follows:.


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



While combining family law and bankruptcy can be a little complicated, there’s always someone to assist you at Bankruptcy Experts Ipswich. If you have any additional concerns relating to bankruptcy and child support payments, or you just need some friendly advice, talk with our team on 1300 795 575, or alternatively visit our website for further information:


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