September 11, 2018 0

Bankruptcy and Child Support – Everything You Should Know

Posted by:Charles Bosse onSeptember 11, 2018

Declaring bankruptcy most certainly isn’t the end of the world, but it does have serious implications that will affect your finances in the coming years. I’ve discovered that in many cases, focusing efforts on building a bright future is the best way for people to deal with their bankruptcy and consecutive recovery. To do this, however, folks must be aware of precisely what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most efficient way possible.

One of the most frequent questions I get asked relates to how bankruptcy will influence child support payments. Even though this topic may seem relatively 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 cover child support debts?

Although bankruptcy releases you from a 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 get in touch with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment supplied by the DHS is inaccurate, you can contest this.


How is child support measured?

The DHS is in charge of managing and working with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS assess 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 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 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 pay off the debts in their bankrupt estate. Despite this, matters like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will have a bearing on your income threshold. The following table reveals the related threshold limits as of September 2017:


The DHS define a dependent as an individual who lives with you most of the time and earns less than $3,539 each 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 pay off the debts in your bankrupt estate.

For example, 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 around $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 approximately $986 per month).


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 yearly, your assessable income would be decreased from $79,500 (income after tax) to $64,500.


After delivering 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 mixing family law and bankruptcy can be slightly perplexing, there’s always someone to help you at Fresh Start Solutions Gold Coast. 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 818 575, or alternatively visit our website for more information:


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