Filing for bankruptcy most certainly isn’t the end of the world, but it does have heavy consequences that will have a bearing on your finances in the coming years. I’ve found that most of the time, focusing efforts on building a bright future is the best way for people to manage their bankruptcy and succeeding recovery. To do this, however, folks have to appreciate precisely what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most proficient way possible.
One of the most common questions I get asked pertains to how bankruptcy will affect child support payments. Although this topic may seem rather straightforward, I’ve found that it creates a lot of misunderstanding so today we’re going to take a closer look and attempt to clear up some of that confusion.
Does bankruptcy release child support debts?
Although bankruptcy releases you from a variety of debts, child support is not one of them. If you owe a significant amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to call the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment provided by the DHS is wrong, you can contest this.
How is child support gauged?
The DHS is in charge of managing and working with separated parents on child support assessments. To establish how much child support you must pay, the DHS investigate 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 ascertain your estimated income for the forthcoming year. This showcases the importance of keeping your tax returns up to date, and any adjustments to your circumstances should be declared to the DHS as quickly as possible.
Income contributions to your bankrupt estate
An income threshold is utilised to ascertain if a bankrupt person can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, factors like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will have an effect on your income threshold. The following table features the specific threshold limits as of September 2017:
The DHS define a dependent as anyone who lives with you most of the time and earns below $3,539 annually.
Assuming you earn over the income threshold, your trustee would determine your income contributions to your bankruptcy estate with the following formula:.
(assessable income – income threshold amount) ÷ 2
Consequently, every 50 cents you earn over your income threshold will be used to settle the debts in your bankrupt estate.
For instance, if you earn $110,000 annually before tax, you’ll likely be paying approximately $30,500 every 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 calculate your bankruptcy payments as follows:.
($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or around $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 previous example, if you are required to pay $15,000 in child support payments annually, your assessable income would be reduced 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 calculate your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or roughly $361 per month).
Whilst blending family law and bankruptcy can be a little confusing, there’s always somebody to help you at Bankruptcy Experts Townsville. If you have any additional queries relating to bankruptcy and child support payments, or you just need some friendly advice, talk with our team on 1300 795 575, or alternatively visit our website for further information: www.bankruptcyexpertstownsville.com.au