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 heavy repercussions that will have a bearing on your finances in the future. I’ve found that in most cases, focusing efforts on developing a bright future is the best way for individuals to handle their bankruptcy and subsequent recovery. To do this, however, people have to appreciate precisely what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most functional way possible.

One of the most concerning questions I get asked pertains to how bankruptcy will have a bearing on child support payments. Whilst this topic may seem relatively straightforward, I’ve found that it creates a lot of misunderstanding so today we’re going to take a closer look and try to clear up some of that confusion.

 

Does bankruptcy cover child support debts?

Whilst 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 talk to the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is incorrect, you can challenge this.

 

How is child support figured out?

The DHS is accountable for supervising and dealing with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS inspect both your income and your care percentage of the children involved. By using your latest tax return as a measure, the DHS will use these numbers to determine your anticipated income for the coming year. This highlights the value of keeping your tax returns up to date, and any alterations to your circumstances should be declared to the DHS as quickly as possible.

 

Income contributions to your bankrupt estate

An income threshold is used to ascertain if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, issues 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 displays the relevant threshold limits as of September 2017:

 

The DHS define a dependent as a person who lives with you most of the time and earns below $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

 

Hence, every 50 cents you earn over your income threshold will be used to pay off the debts in your bankrupt estate.

As an example, if you earn $110,000 annually 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 determine your bankruptcy payments as follows:.

($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or roughly $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 above 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 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 per month).

 

Summary

While combining family law and bankruptcy can be a little perplexing, there’s always someone to assist you at Fresh Start Solutions Perth. 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 additional information: https://freshstartsolutions.com.au/bankruptcy-perth

 

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