Bankruptcy and Child Support – Everything You Need to Know

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Bankruptcy and Child Support – Everything You Need to Know

Filing for bankruptcy most certainly isn’t the end of the world, but it does have considerable implications that will impair your finances in the future. I’ve discovered that most of the time, focusing efforts on building a bright future is the best way for individuals to deal with their bankruptcy and consecutive recovery. To do this, however, individuals have to realise precisely what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most concerning questions I get asked relates to how bankruptcy will affect child support payments. Whilst this topic may appear to be relatively straightforward, I’ve found that it causes 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 range of debts, child support is not one of them. If you owe a substantial amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to connect with the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you think the assessment given by the DHS is incorrect, you can dispute this.


How is child support determined?

The DHS is responsible for overseeing and dealing with separated parents on child support assessments. To determine how much child support you must pay, the DHS assess both your income and your care percentage of the children involved. By utilising your latest tax return as a measure, the DHS will use these numbers to ascertain your anticipated income for the forthcoming year. This highlights the importance of keeping your tax returns up to date, and any changes to your circumstances should be disclosed to the DHS immediately.


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 settle 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 affect your income threshold. The following table displays the relevant threshold limits as of September 2017:


The DHS define a dependent as an individual who lives with you most of the time and earns below $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 annually before tax, you’ll most 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 deducted from your taxable income so the more child support you pay, the less money gets contributed to your bankruptcy estate. Using the above example, if you are required to pay $15,000 in child support payments every year, 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 figure out your bankruptcy payments as follows:.


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



While mixing family law and bankruptcy can be slightly complicated, there’s always someone to help you at Bankruptcy Experts Shepparton. If you have any additional inquiries 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:


By | 2018-09-24T05:24:44+00:00 September 24th, 2018|Bankrupt, Liquidation|0 Comments

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