September 21, 2018Comments Closed

Bankruptcy and Child Support – Everything You Need to Know

Posted by:admin onSeptember 21, 2018

Filing for bankruptcy really isn’t the end of the world, but it does have considerable repercussions that will impact your finances in the years to come. I’ve found that in many cases, focusing efforts on building a bright future is the best way for folks to tackle their bankruptcy and subsequent recovery. To do this, however, people need to grasp exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most proficient way possible.


One of the most routine questions I get asked pertains to how bankruptcy will have an effect on child support payments. Whilst 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 attempt to resolve some of that confusion.


Does bankruptcy release child support debts?

While bankruptcy releases you from a variety of debts, child support is not one of them. If you owe a considerable amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to speak to the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you believe the assessment delivered by the DHS is incorrect, you can dispute this.


How is child support calculated?

The DHS is responsible for managing and dealing with separated parents on child support assessments. To establish how much child support you must pay, the DHS look at 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 calculate your estimated income for the forthcoming year. This highlights the benefit of keeping your tax returns up to date, and any changes to your circumstances should be presented to the DHS as quickly as possible.


Income contributions to your bankrupt estate

An income threshold is used to establish if a bankrupt person can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, matters like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will have a bearing on your income threshold. The following table features the relevant 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 every year.


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


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 yearly before tax, you’ll likely be paying about $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 determine your bankruptcy payments as follows:.


($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or approximately $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 above example, if you are required to pay $15,000 in child support payments yearly, your assessable income would be reduced from $79,500 (income after tax) to $64,500.


After supplying 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 roughly $361 monthly).



Whilst combining family law and bankruptcy can be slightly perplexing, there’s always someone to help you at Bankruptcy Experts Mount Isa. If you have any further concerns 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 further information:


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