Bankruptcy and Child Support – Everything You Have to Know

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Bankruptcy and Child Support – Everything You Have to Know

Filing for bankruptcy definitely isn’t the end of the world, but it does have heavy repercussions that will have an effect on your finances in the years to come. I’ve discovered that in many cases, focusing efforts on creating a bright future is the best way for folks to tackle their bankruptcy and succeeding recovery. To do this, however, people have to grasp 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 have an effect on child support payments. Even though this topic may seem rather 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 release child support debts?

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


How is child support gauged?

The DHS is responsible for managing and dealing with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS examine both your income and your care percentage of the children involved. By utilising your previous tax return as a benchmark, the DHS will use these figures to determine your estimated income for the upcoming year. This showcases the value of keeping your tax returns up to date, and any changes to your circumstances should be relayed to the DHS as soon as possible.


Income contributions to your bankrupt estate

An income threshold is used 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, 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 displays the related threshold limits as of September 2017:


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


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 pay the debts in your bankrupt estate.


As an example, if you earn $110,000 annually before tax, you’ll most likely be paying about $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 monthly).


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 every year, your assessable income would be decreased 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 per month).



Although blending family law and bankruptcy can be a little complicated, there’s always someone to assist you at Bankruptcy Experts Fremantle. If you have any further queries 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 further information:


By | 2018-09-19T01:22:16+00:00 September 19th, 2018|article, Bankruptcy, Blog|0 Comments

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