Bankruptcy and Child Support – Everything You Need to Know

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Bankruptcy and Child Support – Everything You Need to Know

Filing for bankruptcy really isn’t the end of the world, but it does have significant consequences that will have an effect on your finances in the years to come. I’ve found that most of the time, focusing efforts on creating a bright future is the best way for individuals to deal with their bankruptcy and subsequent recovery. To do this, however, people must realise precisely 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 relates to how bankruptcy will affect child support payments. Although this topic may seem pretty 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?

Even though bankruptcy releases you from a wide range of debts, child support is not one of them. If you owe a sizable amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to reach out to the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is wrong, you can contest this.


How is child support calculated?

The DHS is in charge of supervising and dealing with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS inspect 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 numbers to figure out your expected income for the forthcoming year. This emphasises the value of keeping your tax returns up to date, and any adjustments to your circumstances should be relayed to the DHS as soon as possible.


Income contributions to your bankrupt estate

An income threshold is used to determine if a bankrupt individual can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, matters like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will have a bearing on your income threshold. The following table exhibits the specific threshold limits as of September 2017:


The DHS define a dependent as a person who lives with you most of the time and earns no more than $3,539 annually.


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


Subsequently, 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 every year before tax, you’ll probably be paying roughly $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 calculate your bankruptcy payments as follows:.


($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or approximately $986 each month).


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 above example, if you are required to pay $15,000 in child support payments each year, your assessable income would be reduced 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 calculate your bankruptcy payments as follows:.


($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or approximately $361 each month).



While blending family law and bankruptcy can be a little confusing, there’s always somebody to assist you at Bankruptcy Experts Tennant Creek. If you have any more concerns 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 additional information:


By | 2020-08-14T05:17:04+00:00 September 18th, 2018|Bankrupt, Blog|0 Comments

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