Bankruptcy and Child Support – Everything You Have to Know
Filing for bankruptcy really isn’t the end of the world, but it does have severe repercussions that will impair your finances in the coming years. I’ve found that in most cases, focusing efforts on developing a bright future is the best way for folks to manage their bankruptcy and succeeding recovery. To do this, however, folks need to understand precisely what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most efficient way possible.
One of the most concerning questions I get asked relates to how bankruptcy will influence child support payments. Even though this topic may seem fairly 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 wide variety of debts, child support is not one of them. If you owe a sizable amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to connect with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment delivered by the DHS is inaccurate, you can challenge this.
How is child support measured?
The DHS is in charge of regulating and working with separated parents on child support assessments. To figure out how much child support you must pay, the DHS consider both your income and your care percentage of the children involved. By using your last tax return as a measure, the DHS will use these figures to figure out your estimated income for the forthcoming year. This showcases the value of keeping your tax returns up to date, and any adjustments to your circumstances should be reported to the DHS as quickly as possible.
Income contributions to your bankrupt estate
An income threshold is used to ascertain if a bankrupt person can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, issues like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will have an effect on your income threshold. The following table features 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 less than $3,539 yearly.
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 pay the debts in your bankrupt estate.
For instance, if you earn $110,000 yearly before tax, you’ll probably be paying close to $30,500 each 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 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 decreased from $79,500 (income after tax) to $64,500.
After presenting 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 about $361 per month).
Although blending family law and bankruptcy can be slightly perplexing, there’s always somebody to assist you at Bankruptcy Experts Bunbury. If you have any additional questions relating to bankruptcy and child support payments, or you just need some friendly advice, get in touch with our team on 1300 795 575, or alternatively visit our website for additional information: www.bankruptcyexpertsbunbury.com.au