Declaring bankruptcy certainly isn’t the end of the world, but it does have heavy consequences that will impact your finances in the future. I’ve found that in many cases, focusing efforts on building a bright future is the best way for folks to handle their bankruptcy and subsequent recovery. To do this, however, people must comprehend exactly what bankruptcy entails so they can properly budget, plan, and rebuild their wealth in the most efficient way possible.
One of the most concerning questions I get asked is related to how bankruptcy will impact child support payments. Even though this topic may appear to be relatively 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?
While bankruptcy releases you from a 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 delivered by the DHS is incorrect, you can challenge this.
How is child support calculated?
The DHS is responsible for supervising and working with separated parents on child support assessments. To figure out how much child support you must pay, the DHS look at both your income and your care percentage of the children involved. By utilising your previous tax return as a benchmark, the DHS will use these figures to ascertain your expected income for the forthcoming year. This showcases the benefit of keeping your tax returns up to date, and any changes to your circumstances should be reported to the DHS immediately.
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, factors like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will affect your income threshold. The following table exhibits the specific threshold limits as of September 2017:
The DHS define a dependent as an individual who lives with you most of the time and earns under $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
Consequently, every 50 cents you earn over your income threshold will be used to pay off the debts in your bankrupt estate.
For instance, if you earn $110,000 annually before tax, you’ll probably be paying close to $30,500 every year in tax. Your assessable income would therefore be around $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 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 figure out your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or about $361 monthly).
Even though blending family law and bankruptcy can be slightly perplexing, there’s always somebody to help you at Bankruptcy Experts Shellharbour. If you have any additional inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, reach out to our team on 1300 795 575, or alternatively visit our website for more information: www.bankruptcyexpertsshellharbour.com.au