Declaring bankruptcy really isn’t the end of the world, but it does have considerable consequences that will have a bearing on 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 folks to manage their bankruptcy and succeeding recovery. To do this, however, folks need to realise exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most productive way possible.
One of the most frequent questions I get asked relates to how bankruptcy will affect child support payments. Although this topic may seem fairly straightforward, I’ve found that it creates 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?
Even though bankruptcy releases you from a 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 phone the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment delivered by the DHS is inaccurate, you can dispute this.
How is child support measured?
The DHS is accountable for managing and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS look at both your income and your care percentage of the children involved. By using your latest tax return as a benchmark, the DHS will use these figures to calculate your anticipated income for the upcoming year. This showcases the benefit of keeping your tax returns up to date, and any alterations to your circumstances should be reported to the DHS immediately.
Income contributions to your bankrupt estate
An income threshold is utilised to establish if a bankrupt person can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, issues like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will alter your income threshold. The following table features 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 less than $3,539 yearly.
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 repay the debts in your bankrupt estate.
As an example, if you earn $110,000 yearly before tax, you’ll most likely be paying roughly $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 each 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 yearly, your assessable income would be decreased 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 approximately $361 per month).
Although combining family law and bankruptcy can be a little perplexing, there’s always somebody to assist you at Bankruptcy Experts Lismore. If you have any further queries relating to bankruptcy and child support payments, or you just need some friendly advice, phone our team on 1300 795 575, or alternatively visit our website for further information: www.bankruptcyexpertslismore.com.au