Filing for bankruptcy certainly isn’t the end of the world, but it does have heavy repercussions that will impair your finances in the coming years. I’ve found that in most cases, focusing efforts on creating a bright future is the best way for individuals to handle their bankruptcy and subsequent recovery. To do this, however, individuals have to be aware of precisely what bankruptcy entails so they can properly budget, plan, and rebuild their wealth in the most proficient way possible.
One of the most common questions I get asked is related to how bankruptcy will impact child support payments. Even though this topic may appear to be 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 resolve some of that confusion.
Does bankruptcy release child support debts?
Although bankruptcy releases you from a wide range of debts, child support is not one of them. If you owe a significant 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 think the assessment given by the DHS is inaccurate, you can challenge this.
How is child support figured out?
The DHS is accountable for managing and dealing with separated parents on child support assessments. To determine how much child support you must pay, the DHS investigate both your income and your care percentage of the children involved. By using your previous tax return as a measure, the DHS will use these numbers to calculate your expected income for the upcoming year. This showcases the value of keeping your tax returns up to date, and any adjustments to your circumstances should be declared to the DHS as quickly as possible.
Income contributions to your bankrupt estate
An income threshold is utilised to figure out if a bankrupt person can afford to contribute some of their income to repay 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 affect your income threshold. The following table reveals the specific threshold limits as of September 2017:
The DHS define a dependent as anyone 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 pay off the debts in your bankrupt estate.
As an example, if you earn $110,000 annually before tax, you’ll likely be paying roughly $30,500 every 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 determine your bankruptcy payments as follows:.
($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or approximately $986 per 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 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 each month).
Whilst blending family law and bankruptcy can be slightly perplexing, there’s always somebody to assist you at Bankruptcy Experts Wyong. If you have any more inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, get in contact with our team on 1300 795 575, or alternatively visit our website for further information: www.bankruptcyexpertswyong.com.au