Filing for bankruptcy definitely 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 building a bright future is the best way for individuals to tackle their bankruptcy and succeeding recovery. To do this, however, people need to appreciate precisely 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 have an effect on child support payments. Although this topic may seem relatively straightforward, I’ve found that it leads to 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?
Even though bankruptcy releases you from a 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 consult with the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you believe the assessment given by the DHS is incorrect, you can challenge this.
How is child support calculated?
The DHS is responsible for managing and dealing with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS evaluate both your income and your care percentage of the children involved. By using your previous tax return as a benchmark, the DHS will use these numbers to figure out your expected income for the forthcoming year. This highlights the benefit of keeping your tax returns up to date, and any alterations to your circumstances should be reported to the DHS immediately.
Income contributions to your bankrupt estate
An income threshold is utilised to verify if a bankrupt person can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, matters like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will have a bearing on your income threshold. The following table features the relevant threshold limits as of September 2017:
The DHS define a dependent as someone who lives with you most of the time and earns below $3,539 every year.
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 repay the debts in your bankrupt estate.
For instance, if you earn $110,000 annually before tax, you’ll probably be paying roughly $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 determine your bankruptcy payments as follows:.
($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or about $986 per 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 every year, 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 approximately $361 per month).
Although mixing family law and bankruptcy can be slightly confusing, there’s always somebody to assist you at Bankruptcy Experts Hervey Bay. If you have any additional questions 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 further information: www.bankruptcyexpertsherveybay.com.au