Bankruptcy and Child Support – Everything You Have to Know

Declaring bankruptcy really isn’t the end of the world, but it does have heavy implications that will affect your finances in the coming years. I’ve found that most of the time, focusing efforts on developing a bright future is the best way for individuals to deal with their bankruptcy and succeeding recovery. To do this, however, people need to appreciate precisely what bankruptcy entails so they can properly 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 have a bearing on child support payments. Even though this topic may seem fairly 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 release child support debts?

While bankruptcy releases you from a range 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 phone the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment presented by the DHS is wrong, you can dispute this.

 

How is child support measured?

The DHS is responsible for overseeing and working 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 using your previous tax return as a benchmark, the DHS will use these numbers to figure out your anticipated income for the coming year. This highlights the importance 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 determine if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, factors like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will affect your income threshold. The following table reveals 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 no more than $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

 

As a result, 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 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 calculate 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 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 annually, 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 determine your bankruptcy payments as follows:.

 

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

 

Summary

Although combining family law and bankruptcy can be a little complicated, there’s always someone to help you at Bankruptcy Experts Sydney. If you have any additional queries relating to bankruptcy and child support payments, or you just need some friendly advice, speak with our team on 1300 795 575, or alternatively visit our website for further information: www.bankruptcyexpertssydney.com.au