Declaring bankruptcy certainly isn’t the end of the world, but it does have meaningful repercussions that will have a bearing on your finances in the future. I’ve found that in many cases, focusing efforts on building a bright future is the best way for folks to handle their bankruptcy and subsequent recovery. To do this, however, individuals must realise exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most efficient way possible.
One of the most frequent questions I get asked pertains to how bankruptcy will have an effect on child support payments. Even though this topic may appear to be pretty 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?
Even though bankruptcy releases you from a 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 supplied by the DHS is inaccurate, you can dispute this.
How is child support measured?
The DHS is in charge of managing and dealing with separated parents on child support assessments. To determine how much child support you must pay, the DHS review 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 figures to ascertain your estimated income for the forthcoming year. This emphasises the value of keeping your tax returns up to date, and any changes to your circumstances should be relayed to the DHS as quickly as possible.
Income contributions to your bankrupt estate
An income threshold is used to verify if a bankrupt individual can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, factors like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will alter your income threshold. The following table exhibits the related threshold limits as of September 2017:
The DHS define a dependent as an individual who lives with you most of the time and earns no more than $3,539 each year.
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
As a result, every 50 cents you earn over your income threshold will be used to pay off the debts in your bankrupt estate.
For example, if you earn $110,000 every year before tax, you’ll probably be paying roughly $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 determine your bankruptcy payments as follows:.
($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or roughly $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 yearly, your assessable income would be reduced 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 figure out 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 Joondalup. If you have any additional questions relating to bankruptcy and child support payments, or you just need some friendly advice, reach out to our team on 1300 795 575, or alternatively visit our website for further information: www.bankruptcyexpertsjoondalup.com.au