Bankruptcy and Child Support – Everything You Should Know

Declaring bankruptcy most certainly isn’t the end of the world, but it does have severe implications that will impact your finances in the future. I’ve found that in most cases, focusing efforts on developing a bright future is the best way for individuals to manage their bankruptcy and subsequent recovery. To do this, however, individuals have to comprehend exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most frequent questions I get asked pertains to how bankruptcy will affect child support payments. While this topic may seem fairly straightforward, I’ve found that it causes 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?

While bankruptcy releases you from a wide 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 call the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you believe the assessment given by the DHS is incorrect, you can contest this.


How is child support gauged?

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 examine 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 determine your estimated income for the upcoming year. This highlights the benefit of keeping your tax returns up to date, and any changes to your circumstances should be declared to the DHS as soon as possible.


Income contributions to your bankrupt estate

An income threshold is used to determine 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 alter your income threshold. The following table displays the specific threshold limits as of September 2017:


The DHS define a dependent as anyone who lives with you most of the time and earns below $3,539 yearly.


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 repay the debts in your bankrupt estate.


For example, if you earn $110,000 yearly before tax, you’ll most likely be paying approximately $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 calculate your bankruptcy payments as follows:.


($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or about $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 yearly, your assessable income would be decreased from $79,500 (income after tax) to $64,500.


After providing your trustee with a copy of your child support assessment from the DHS, your trustee would calculate your bankruptcy payments as follows:.


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



Although mixing family law and bankruptcy can be a little complicated, there’s always somebody to help you at Bankruptcy Experts Melbourne. If you have any further inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, phone our team on 1300 795 575, or alternatively visit our website for more information:


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