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- September 20, 2018
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Declaring bankruptcy certainly isn’t the end of the world, but it does have major consequences that will affect your finances in the years to come. I’ve found that in most cases, focusing efforts on developing a bright future is the best way for folks to handle their bankruptcy and subsequent recovery. To do this, however, individuals need to comprehend exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most functional way possible.
One of the most frequent questions I get asked pertains to how bankruptcy will influence child support payments. Although 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 resolve some of that confusion.
Does bankruptcy cover child support debts?
Whilst bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a substantial amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to get in touch with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is incorrect, you can challenge this.
How is child support figured out?
The DHS is accountable for regulating and working with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS consider both your income and your care percentage of the children involved. By utilising your last tax return as a measure, the DHS will use these numbers to calculate your anticipated income for the coming year. This highlights the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be relayed to the DHS immediately.
Income contributions to your bankrupt estate
An income threshold is utilised to ascertain if a bankrupt person can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, issues like the number of dependents, child support payments, income tax, 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 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
Consequently, every 50 cents you earn over your income threshold will be used to repay the debts in your bankrupt estate.
For example, if you earn $110,000 yearly before tax, you’ll probably be paying approximately $30,500 each 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 calculate your bankruptcy payments as follows:.
($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or roughly $986 each month).
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 reduced from $79,500 (income after tax) to $64,500.
After presenting 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 roughly $361 each month).
Although combining family law and bankruptcy can be slightly perplexing, there’s always someone to help you at Bankruptcy Experts Gladstone. If you have any more queries relating to bankruptcy and child support payments, or you just need some friendly advice, reach out to our team on 1300 795 575, or alternatively visit our website for additional information: www.bankruptcyexpertsgladstone.com.au