Bankruptcy and Child Support – Everything You Should Know

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Bankruptcy and Child Support – Everything You Should Know

Filing for bankruptcy really isn’t the end of the world, but it does have considerable consequences that will impair your finances in the years to come. I’ve found that in many cases, focusing efforts on building a bright future is the best way for people to manage their bankruptcy and succeeding 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 productive way possible.


One of the most frequent questions I get asked is related to how bankruptcy will have an effect on child support payments. Whilst this topic may appear to be rather straightforward, I’ve found that it causes 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 cover child support debts?

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


How is child support measured?

The DHS is responsible for supervising and working with separated parents on child support assessments. To calculate how much child support you must pay, the DHS evaluate 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 numbers to figure out your expected income for the forthcoming year. This highlights the benefit of keeping your tax returns up to date, and any changes to your circumstances should be reported to the DHS as quickly as possible.


Income contributions to your bankrupt estate

An income threshold is utilised to determine if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, issues like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will alter your income threshold. The following table displays the relevant threshold limits as of September 2017:


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


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


As an example, if you earn $110,000 each year before tax, you’ll probably be paying around $30,500 every year in tax. Your assessable income would therefore be around $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 about $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 each year, 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 calculate your bankruptcy payments as follows:.


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



While blending family law and bankruptcy can be a little perplexing, there’s always somebody to help you at Bankruptcy Experts Geraldton. If you have any more questions relating to bankruptcy and child support payments, or you just need some friendly advice, speak to our team on 1300 795 575, or alternatively visit our website for further information:


By | 2018-09-17T05:15:04+00:00 September 17th, 2018|Bankruptcy, Liquidation|0 Comments

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