|September 16, 2018||Comments Closed|
Filing for bankruptcy definitely isn’t the end of the world, but it does have serious implications that will impair your finances in the years to come. I’ve found that in many cases, focusing efforts on building a bright future is the best way for people to manage their bankruptcy and subsequent recovery. To do this, however, people need to 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 common questions I get asked relates to how bankruptcy will have a bearing on 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 attempt to clear up some of that confusion.
Does bankruptcy release 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 reach out to the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you think the assessment given by the DHS is inaccurate, you can challenge this.
How is child support gauged?
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 evaluate 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 expected income for the forthcoming year. This emphasises the importance of keeping your tax returns up to date, and any changes to your circumstances should be reported to the DHS as quickly as possible.
Income contributions to your bankrupt estate
An income threshold is used to figure out if a bankrupt individual can afford to contribute some of their income to pay off the debts in their bankrupt estate. Despite this, variables like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will alter your income threshold. The following table displays the relevant threshold limits as of September 2017:
The DHS define a dependent as somebody who lives with you most of the time and earns below $3,539 annually.
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
Consequently, every 50 cents you earn over your income threshold will be used to settle the debts in your bankrupt estate.
As an example, if you earn $110,000 yearly before tax, you’ll probably be paying about $30,500 every year in tax. Your assessable income would therefore be around $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 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 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 determine your bankruptcy payments as follows:.
($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or approximately $361 each month).
Even though combining family law and bankruptcy can be slightly confusing, there’s always someone to help you at Bankruptcy Experts Bendigo. If you have any further concerns 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: www.bankruptcyexpertsbendigo.com.au