Declaring bankruptcy really isn’t the end of the world, but it does have meaningful implications that will impair your finances in the future. I’ve found that most of the time, focusing efforts on building a bright future is the best way for people to handle their bankruptcy and succeeding recovery. To do this, however, individuals must appreciate exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most proficient way possible.
One of the most frequent questions I get asked pertains to how bankruptcy will have a bearing on child support payments. Although this topic may seem pretty straightforward, I’ve found that it creates a lot of misunderstanding so today we’re going to take a closer look and try to clear up some of that confusion.
Does bankruptcy cover child support debts?
Whilst 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 declare bankruptcy, it will not be released in bankruptcy so it’s best to connect with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment given by the DHS is incorrect, you can dispute this.
How is child support determined?
The DHS is accountable for supervising and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS consider both your income and your care percentage of the children involved. By using your latest tax return as a measure, the DHS will use these figures to figure out your estimated income for the upcoming year. This highlights the importance of keeping your tax returns up to date, and any changes to your circumstances should be relayed to the DHS immediately.
Income contributions to your bankrupt estate
An income threshold is used to figure out if a bankrupt person can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, factors like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will influence your income threshold. The following table reveals the specific threshold limits as of September 2017:
The DHS define a dependent as someone who lives with you most of the time and earns under $3,539 each year.
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
As a result, every 50 cents you earn over your income threshold will be used to settle the debts in your bankrupt estate.
For instance, if you earn $110,000 yearly before tax, you’ll most likely be paying close to $30,500 each 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 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 yearly, your assessable income would be reduced from $79,500 (income after tax) to $64,500.
After supplying 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 around $361 monthly).
Whilst combining family law and bankruptcy can be slightly perplexing, there’s always someone to assist you at Bankruptcy Experts Tweed Coast. If you have any more questions 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 further information: www.bankruptcyexpertstweedcoast.com.au