Bankruptcy and Child Support – Everything You Should Know

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Bankruptcy and Child Support – Everything You Should Know

Declaring bankruptcy definitely isn’t the end of the world, but it does have severe implications that will have a bearing on your finances in the coming years. I’ve found that in most cases, focusing efforts on creating a bright future is the best way for individuals to handle their bankruptcy and succeeding recovery. To do this, however, people have to be aware of exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most productive way possible.

One of the most frequent questions I get asked relates to how bankruptcy will have an effect on child support payments. Whilst 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 resolve some of that confusion.


Does bankruptcy cover child support debts?

Whilst bankruptcy releases you from a variety 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 negotiate a repayment plan. If, for whatever reason, you believe the assessment delivered by the DHS is incorrect, you can contest this.


How is child support calculated?

The DHS is responsible for regulating and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS investigate both your income and your care percentage of the children involved. By utilising your last tax return as a measure, the DHS will use these numbers to determine your expected income for the forthcoming year. This showcases the benefit of keeping your tax returns up to date, and any alterations to your circumstances should be disclosed to the DHS immediately.


Income contributions to your bankrupt estate

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


The DHS define a dependent as somebody 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


Hence, 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 every year before tax, you’ll likely be paying about $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 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 every year, your assessable income would be reduced from $79,500 (income after tax) to $64,500.


After supplying 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 mixing family law and bankruptcy can be slightly confusing, there’s always someone to help you at Bankruptcy Experts Coffs Harbour. If you have any additional queries 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:


By | 2020-08-14T02:36:37+00:00 September 17th, 2018|Bankrupt|0 Comments

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