Declaring bankruptcy most certainly isn’t the end of the world, but it does have severe consequences that will impact your finances in the future. I’ve found that in many cases, focusing efforts on building a bright future is the best way for people to tackle their bankruptcy and succeeding recovery. To do this, however, folks must appreciate exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most efficient way possible.
One of the most frequent questions I get asked relates to how bankruptcy will impact child support payments. Even though this topic may appear to be pretty 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 release child support debts?
Whilst bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a large amount of money in child support when you file for 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 presented by the DHS is inaccurate, you can dispute this.
How is child support figured out?
The DHS is in charge of supervising and working with separated parents on child support assessments. To figure out how much child support you must pay, the DHS investigate both your income and your care percentage of the children involved. By using your last tax return as a benchmark, the DHS will use these figures to determine your expected income for the coming year. This emphasises the benefit of keeping your tax returns up to date, and any changes to your circumstances should be disclosed to the DHS as quickly as possible.
Income contributions to your bankrupt estate
An income threshold is used to determine if a bankrupt individual can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, factors like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will influence your income threshold. The following table reveals the related threshold limits as of September 2017:
The DHS define a dependent as somebody who lives with you most of the time and earns no more than $3,539 yearly.
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
Hence, every 50 cents you earn over your income threshold will be used to repay the debts in your bankrupt estate.
For instance, if you earn $110,000 annually before tax, you’ll likely be paying about $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 monthly).
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 decreased 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 calculate your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or approximately $361 each month).
Although combining family law and bankruptcy can be slightly complicated, there’s always somebody to assist you at Bankruptcy Experts Gold Coast. If you have any further questions relating to bankruptcy and child support payments, or you just need some friendly advice, speak with our team on 1300 879 867, or alternatively visit our website for further information: www.bankruptcyexpertsgoldcoast.com.au