Bankruptcy and Child Support – Everything You Should Know

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Bankruptcy and Child Support – Everything You Should Know

Filing for bankruptcy most certainly isn’t the end of the world, but it does have heavy repercussions that will affect your finances in the future. I’ve discovered that in most cases, focusing efforts on creating a bright future is the best way for folks to handle their bankruptcy and succeeding recovery. To do this, however, people have to appreciate exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most functional way possible.


One of the most concerning questions I get asked is related to how bankruptcy will impact child support payments. Whilst this topic may appear to be fairly straightforward, I’ve found that it causes 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?

While 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 get in touch with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is incorrect, you can dispute this.


How is child support figured out?

The DHS is responsible for managing and working with separated parents on child support assessments. To calculate how much child support you must pay, the DHS take a look at 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 figures to determine your expected income for the coming year. This highlights the importance of keeping your tax returns up to date, and any changes to your circumstances should be presented to the DHS immediately.


Income contributions to your bankrupt estate

An income threshold is used to ascertain if a bankrupt individual can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, factors like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will have a bearing on your income threshold. The following table features the specific threshold limits as of September 2017:


The DHS define a dependent as somebody 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


Subsequently, 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 every year before tax, you’ll most likely be paying roughly $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 around $986 per 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 previous 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 calculate your bankruptcy payments as follows:.


($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or roughly $361 monthly).



Even though blending family law and bankruptcy can be a little perplexing, there’s always somebody to assist you at Bankruptcy Experts Taree. If you have any further concerns 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:


By | 2020-08-14T02:41:40+00:00 September 17th, 2018|Bankruptcy, Liquidation|0 Comments

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