Bankruptcy and Child Support – Everything You Need to Know

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Bankruptcy and Child Support – Everything You Need to Know

Declaring bankruptcy most certainly isn’t the end of the world, but it does have major implications that will have a bearing on your finances in the future. I’ve discovered that in many cases, focusing efforts on creating a bright future is the best way for folks to deal with their bankruptcy and subsequent recovery. To do this, however, individuals have to be aware of exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most functional way possible.


One of the most frequent questions I get asked relates to how bankruptcy will impact child support payments. Whilst this topic may appear to be 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 substantial amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to consult with the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is inaccurate, you can dispute this.


How is child support gauged?

The DHS is accountable for supervising and working with separated parents on child support assessments. To establish how much child support you must pay, the DHS examine both your income and your care percentage of the children involved. By utilising your latest tax return as a benchmark, the DHS will use these figures to figure out your estimated income for the upcoming year. This emphasises the value of keeping your tax returns up to date, and any alterations to your circumstances should be presented to the DHS as soon as possible.


Income contributions to your bankrupt estate

An income threshold is used to verify if a bankrupt individual can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, matters like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will affect your income threshold. The following table features the relevant threshold limits as of September 2017:


The DHS define a dependent as an individual who lives with you most of the time and earns below $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 settle the debts in your bankrupt estate.


As an example, if you earn $110,000 yearly before tax, you’ll likely be paying about $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 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 above 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 determine your bankruptcy payments as follows:.


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



Although mixing family law and bankruptcy can be slightly confusing, there’s always somebody to help you at Bankruptcy Experts Frankston. If you have any additional concerns 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:


By | 2018-09-17T04:50:05+00:00 September 17th, 2018|Bankruptcy, Liquidation|0 Comments

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