Bankruptcy and Child Support – Everything You Have to Know

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Bankruptcy and Child Support – Everything You Have to Know

Declaring bankruptcy most certainly isn’t the end of the world, but it does have serious repercussions that will have a bearing on your finances in the coming years. I’ve found that in many cases, focusing efforts on creating a bright future is the best way for folks to deal with their bankruptcy and succeeding recovery. To do this, however, people must grasp exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most productive way possible.


One of the most concerning questions I get asked pertains to how bankruptcy will have an effect on child support payments. While this topic may appear to be rather 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?

Although bankruptcy releases you from a range of debts, child support is not one of them. If you owe a hefty amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to connect with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment delivered by the DHS is wrong, you can challenge this.


How is child support determined?

The DHS is in charge of overseeing and dealing with separated parents on child support assessments. To figure out 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 anticipated 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 declared to the DHS as quickly as possible.


Income contributions to your bankrupt estate

An income threshold is used to verify if a bankrupt person can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, matters like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will influence your income threshold. The following table exhibits the specific threshold limits as of September 2017:


The DHS define a dependent as an individual who lives with you most of the time and earns below $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


Subsequently, every 50 cents you earn over your income threshold will be used to repay the debts in your bankrupt estate.


As an example, if you earn $110,000 annually before tax, you’ll likely be paying approximately $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 roughly $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 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 determine your bankruptcy payments as follows:.


($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or about $361 monthly).



Although blending family law and bankruptcy can be slightly complicated, there’s always somebody to assist you at Bankruptcy Experts Adelaide. If you have any further inquiries 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 additional information:


By | 2020-08-17T01:17:41+00:00 September 21st, 2018|bankrupt, blog|0 Comments

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