Declaring bankruptcy definitely isn’t the end of the world, but it does have heavy consequences that will have a bearing on your finances in the future. I’ve found that in many cases, focusing efforts on building a bright future is the best way for folks to manage their bankruptcy and consecutive recovery. To do this, however, individuals have to comprehend exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most productive way possible.
One of the most frequent questions I get asked pertains to how bankruptcy will impact child support payments. While this topic may appear to be relatively straightforward, I’ve found that it creates 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?
Although bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a hefty 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 negotiate a repayment plan. If, for whatever reason, you feel the assessment provided by the DHS is incorrect, you can dispute this.
How is child support measured?
The DHS is accountable for supervising and working 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 last tax return as a measure, the DHS will use these figures to determine your estimated income for the forthcoming year. This emphasises the benefit of keeping your tax returns up to date, and any alterations to your circumstances should be presented to the DHS immediately.
Income contributions to your bankrupt estate
An income threshold is utilised to establish if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, variables like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will alter your income threshold. The following table exhibits 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 every 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
As a result, every 50 cents you earn over your income threshold will be used to repay the debts in your bankrupt estate.
As an example, if you earn $110,000 yearly before tax, you’ll likely be paying around $30,500 each year in tax. Your assessable income would therefore be around $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 about $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 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 about $361 each month).
Whilst combining family law and bankruptcy can be slightly confusing, there’s always somebody to help you at Bankruptcy Experts Parramatta. If you have any more inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, talk to our team on 1300 795 575, or alternatively visit our website for additional information: www.bankruptcyexpertsparramatta.com.au