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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 implications that will have an effect on your finances in the years to come. I’ve discovered that most of the time, focusing efforts on developing a bright future is the best way for individuals to manage their bankruptcy and subsequent recovery. To do this, however, people have to grasp exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most routine questions I get asked pertains to how bankruptcy will influence child support payments. Even though this topic may appear to be 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 clear up some of that confusion.


Does bankruptcy release child support debts?

While bankruptcy releases you from a wide range of debts, child support is not one of them. If you owe a significant amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to speak with the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you feel the assessment provided by the DHS is inaccurate, you can contest this.


How is child support gauged?

The DHS is responsible for supervising and working with separated parents on child support assessments. To figure out how much child support you must pay, the DHS inspect 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 anticipated income for the upcoming year. This emphasises the importance of keeping your tax returns up to date, and any alterations to your circumstances should be presented to the DHS as quickly 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 child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will affect your income threshold. The following table features the relevant threshold limits as of September 2017:


The DHS define a dependent as anyone who lives with you most of the time and earns under $3,539 yearly.


Assuming you earn over the income threshold, your trustee would determine your income contributions to your bankruptcy estate with the following formula:.


(assessable income – income threshold amount) ÷ 2


Consequently, every 50 cents you earn over your income threshold will be used to pay the debts in your bankrupt estate.


For instance, if you earn $110,000 annually before tax, you’ll probably be paying about $30,500 every 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 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 decreased 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 figure out your bankruptcy payments as follows:.


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



Whilst combining family law and bankruptcy can be a little complex, there’s always somebody to help you at Bankruptcy Experts Gosford. If you have any more queries relating to bankruptcy and child support payments, or you just need some friendly advice, talk to our team on 1300 795 575, or alternatively visit our website for additional information: www.bankruptcyexpertsgosford.com.au


By | 2018-09-19T05:46:11+00:00 September 19th, 2018|Article, Bankruptcy, Blog|0 Comments

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