Bankruptcy and Child Support – Everything You Need to Know

Bankruptcy and Child Support – Everything You Need to Know

Declaring bankruptcy definitely isn’t the end of the world, but it does have heavy consequences that will affect your finances in the years to come. I’ve found that in most cases, focusing efforts on building a bright future is the best way for people to deal with their bankruptcy and subsequent recovery. To do this, however, individuals must be aware of exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most proficient way possible.

 

One of the most concerning questions I get asked is related to how bankruptcy will have a bearing on child support payments. Although this topic may appear to be fairly straightforward, I’ve found that it leads to a lot of misunderstanding so today we’re going to take a closer look and try to resolve some of that confusion.

 

Does bankruptcy release child support debts?

Although bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a hefty 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 discuss a repayment plan. If, for whatever reason, you believe the assessment given by the DHS is incorrect, you can contest this.

 

How is child support figured out?

The DHS is responsible for managing and working with separated parents on child support assessments. To figure out how much child support you must pay, the DHS evaluate both your income and your care percentage of the children involved. By utilising your previous tax return as a measure, the DHS will use these numbers to ascertain your anticipated income for the upcoming 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 figure out if a bankrupt individual can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, factors like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will influence your income threshold. The following table features 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 no more than $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

 

As a result, every 50 cents you earn over your income threshold will be used to repay the debts in your bankrupt estate.

 

For example, if you earn $110,000 annually before tax, you’ll likely be paying close to $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 monthly).

 

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 previous 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 delivering 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 each month).

 

Summary

Whilst mixing family law and bankruptcy can be a little perplexing, there’s always someone to help you at Bankruptcy Experts Darwin. If you have any additional concerns 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: www.bankruptcyexpertsdarwin.com.au

 

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