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 considerable consequences that will have an effect on your finances in the years to come. I’ve discovered that most of the time, focusing efforts on building a bright future is the best way for people to manage their bankruptcy and subsequent recovery. To do this, however, folks must realise exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most efficient way possible.

One of the most common questions I get asked relates to how bankruptcy will have a bearing on child support payments. Although this topic may seem pretty 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 cover child support debts?

Whilst bankruptcy releases you from a range 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 visit the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you believe the assessment given by the DHS is incorrect, you can challenge this.

 

How is child support determined?

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 evaluate 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 numbers to figure out your expected income for the forthcoming year. This highlights the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be relayed to the DHS as quickly as possible.

 

Income contributions to your bankrupt estate

An income threshold is utilised to verify if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, factors 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 anyone who lives with you most of the time and earns under $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.

For instance, if you earn $110,000 annually before tax, you’ll probably 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 determine 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 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 annually, 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 determine your bankruptcy payments as follows:.

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

 

Summary

Although blending family law and bankruptcy can be slightly complex, there’s always somebody to help you at Fresh Start Solutions Darwin. If you have any additional queries relating to bankruptcy and child support payments, or you just need some friendly advice, reach out to our team on 1300 818 575, or alternatively visit our website for more information: https://freshstartsolutions.com.au/bankruptcy-darwin

 

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