Bankruptcy and Child Support – Everything You Need to Know

Filing for bankruptcy definitely isn’t the end of the world, but it does have serious implications that will impair your finances in the years to come. I’ve found that most of the time, focusing efforts on building a bright future is the best way for individuals to manage their bankruptcy and consecutive recovery. To do this, however, individuals need to appreciate exactly what bankruptcy entails so they can properly budget, plan, and rebuild their wealth in the most functional way possible.

 

One of the most common questions I get asked pertains to how bankruptcy will impact child support payments. Although this topic may seem 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 resolve some of that confusion.

 

Does bankruptcy release 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 file for bankruptcy, it will not be released in bankruptcy so it’s best to phone the Department of Human Services (DHS) and arrange 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 figured out?

The DHS is accountable for overseeing and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS inspect both your income and your care percentage of the children involved. By using your last tax return as a benchmark, the DHS will use these numbers to calculate your anticipated income for the upcoming year. This showcases the importance of keeping your tax returns up to date, and any alterations to your circumstances should be relayed to the DHS as quickly as possible.

 

Income contributions to your bankrupt estate

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

 

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

 

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

 

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

 

For instance, if you earn $110,000 yearly before tax, you’ll most likely be paying approximately $30,500 each 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 per month).

 

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 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 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 roughly $361 monthly).

 

Summary

While mixing family law and bankruptcy can be slightly perplexing, there’s always someone to assist you at Bankruptcy Australia. If you have any additional queries relating to bankruptcy and child support payments, or you just need some friendly advice, call our team on 1300 795 575, or alternatively visit our website for more information: www.bankruptcy-australia.net.au