Filing for bankruptcy certainly isn’t the end of the world, but it does have major consequences that will have a bearing on your finances in the coming years. I’ve found that in most cases, focusing efforts on building a bright future is the best way for folks to deal with their bankruptcy and consecutive recovery. To do this, however, individuals have to realise precisely what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most efficient way possible.
One of the most concerning questions I get asked pertains to how bankruptcy will have a bearing on child support payments. Even though this topic may appear to be rather 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 clear up some of that confusion.
Does bankruptcy cover child support debts?
Whilst 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 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 negotiate a repayment plan. If, for whatever reason, you feel the assessment provided by the DHS is inaccurate, you can dispute this.
How is child support determined?
The DHS is in charge of managing and dealing with separated parents on child support assessments. To establish how much child support you must pay, the DHS review 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 forthcoming year. This highlights the value of keeping your tax returns up to date, and any alterations to your circumstances should be relayed to the DHS immediately.
Income contributions to your bankrupt estate
An income threshold is utilised to determine if a bankrupt person can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, factors like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will have an effect on your income threshold. The following table displays the specific threshold limits as of September 2017:
The DHS define a dependent as somebody who lives with you most of the time and earns under $3,539 each 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.
For instance, if you earn $110,000 every year before tax, you’ll probably be paying about $30,500 every 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 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 annually, your assessable income would be reduced from $79,500 (income after tax) to $64,500.
After delivering your trustee with a copy of your child support assessment from the DHS, your trustee would determine your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or about $361 monthly).
Even though mixing family law and bankruptcy can be a little complex, there’s always somebody to help you at Bankruptcy Experts Kalgoorlie. If you have any more 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 further information: www.bankruptcyexpertskalgoorlie.com.au