Declaring bankruptcy certainly isn’t the end of the world, but it does have considerable implications 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 people to tackle their bankruptcy and succeeding recovery. To do this, however, folks have to understand precisely what bankruptcy entails so they can properly budget, plan, and rebuild their wealth in the most efficient way possible.
One of the most common questions I get asked pertains to how bankruptcy will have an effect on child support payments. Although this topic may seem rather straightforward, I’ve found that it causes a lot of misunderstanding so today we’re going to take a closer look and attempt to clear up some of that confusion.
Does bankruptcy release child support debts?
Although bankruptcy releases you from a range of debts, child support is not one of them. If you owe a substantial amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to get in touch 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 wrong, you can dispute this.
How is child support gauged?
The DHS is in charge of supervising and dealing with separated parents on child support assessments. To calculate how much child support you must pay, the DHS review 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 calculate your anticipated income for the coming year. This emphasises the benefit of keeping your tax returns up to date, and any alterations to your circumstances should be disclosed to the DHS as quickly as possible.
Income contributions to your bankrupt estate
An income threshold is utilised to establish if a bankrupt person can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, issues like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will have an effect on your income threshold. The following table exhibits the relevant threshold limits as of September 2017:
The DHS define a dependent as a person 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 the debts in your bankrupt estate.
As an example, if you earn $110,000 yearly before tax, you’ll most likely be paying about $30,500 each 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 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 decreased 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 determine your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or about $361 monthly).
Whilst blending family law and bankruptcy can be slightly complicated, there’s always someone to assist you at Bankruptcy Experts Dubbo. If you have any further 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: www.bankruptcyexpertsdubbo.com.au