Bankruptcy and Child Support – Everything You Need to Know

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Bankruptcy and Child Support – Everything You Need to Know

Declaring bankruptcy certainly isn’t the end of the world, but it does have considerable consequences that will have a bearing on your finances in the years to come. I’ve found that in many cases, focusing efforts on developing a bright future is the best way for individuals to handle their bankruptcy and succeeding recovery. To do this, however, individuals have to be aware of precisely what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most productive way possible.


One of the most routine questions I get asked is related to how bankruptcy will have a bearing on child support payments. Although this topic may seem 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 release child support debts?

Even though 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 declare bankruptcy, it will not be released in bankruptcy so it’s best to consult the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you believe the assessment delivered by the DHS is wrong, you can contest this.


How is child support calculated?

The DHS is accountable for regulating and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS take a look at both your income and your care percentage of the children involved. By using your previous tax return as a benchmark, the DHS will use these figures to calculate your anticipated income for the coming year. This emphasises the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be declared to the DHS as soon as possible.


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 settle the debts in their bankrupt estate. Despite this, factors like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will alter your income threshold. The following table reveals the relevant threshold limits as of September 2017:


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


Assuming you earn over the income threshold, your trustee would determine 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 likely be paying around $30,500 each year in tax. Your assessable income would therefore be roughly $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 above 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 figure out your bankruptcy payments as follows:.


($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or around $361 each month).



Although blending family law and bankruptcy can be slightly complex, there’s always someone to assist you at Bankruptcy Experts Mackay. If you have any additional inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, talk with our team on 1300 795 575, or alternatively visit our website for more information:


By | 2018-09-17T23:58:30+00:00 September 17, 2018|Article, bankruptcy, blog|