Filing for bankruptcy most certainly isn’t the end of the world, but it does have major repercussions that will impact your finances in the coming years. I’ve found that most of the time, focusing efforts on building a bright future is the best way for people to handle their bankruptcy and succeeding recovery. To do this, however, folks need to comprehend precisely what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most efficient way possible.
One of the most routine questions I get asked pertains to how bankruptcy will influence 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 attempt to resolve some of that confusion.
Does bankruptcy release child support debts?
Even though bankruptcy releases you from a 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 phone the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is inaccurate, you can challenge this.
How is child support calculated?
The DHS is accountable for managing and working with separated parents on child support assessments. To ascertain 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 latest tax return as a measure, the DHS will use these figures to determine your estimated income for the forthcoming year. This emphasises the importance of keeping your tax returns up to date, and any adjustments to your circumstances should be declared to the DHS immediately.
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 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 displays the relevant threshold limits as of September 2017:
The DHS define a dependent as a person who lives with you most of the time and earns under $3,539 every year.
Assuming you earn over the income threshold, your trustee would calculate 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.
For instance, if you earn $110,000 yearly before tax, you’ll most likely be paying close to $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 determine your bankruptcy payments as follows:.
($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or roughly $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 above example, if you are required to pay $15,000 in child support payments each year, 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 figure out your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or around $361 monthly).
Whilst mixing family law and bankruptcy can be a little confusing, there’s always someone to assist you at Bankruptcy Experts Brisbane. If you have any additional questions relating to bankruptcy and child support payments, or you just need some friendly advice, get in contact with our team on 1300 795 575, or alternatively visit our website for more information: www.bankruptcyexpertsbrisbane.com.au