Declaring bankruptcy definitely isn’t the end of the world, but it does have serious consequences that will impact your finances in the years to come. I’ve discovered that most of the time, focusing efforts on creating a bright future is the best way for people to manage their bankruptcy and succeeding recovery. To do this, however, people have to be aware of precisely what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most functional way possible.
One of the most routine questions I get asked relates to how bankruptcy will affect child support payments. While this topic may appear to be fairly straightforward, I’ve found that it leads to 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?
While 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 contact the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you believe the assessment supplied by the DHS is incorrect, you can challenge this.
How is child support determined?
The DHS is responsible for overseeing and dealing with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS assess both your income and your care percentage of the children involved. By using your last tax return as a measure, the DHS will use these numbers to ascertain your anticipated income for the forthcoming year. This showcases the value of keeping your tax returns up to date, and any adjustments to your circumstances should be reported to the DHS as soon as possible.
Income contributions to your bankrupt estate
An income threshold is utilised to verify if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, variables like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits 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 someone 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
Hence, every 50 cents you earn over your income threshold will be used to settle the debts in your bankrupt estate.
For example, if you earn $110,000 yearly before tax, you’ll probably be paying around $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 around $986 each 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 providing 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 about $361 each month).
Whilst mixing family law and bankruptcy can be slightly complicated, there’s always someone to assist you at Bankruptcy Experts Alice Springs. If you have any more concerns relating to bankruptcy and child support payments, or you just need some friendly advice, speak with our team on 1300 795 575, or alternatively visit our website for more information: www.bankruptcyexpertsalicesprings.com.au