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Bankruptcy and Child Support – Everything You Have to Know

Filing for bankruptcy most certainly isn’t the end of the world, but it does have severe consequences that will impair your finances in the future. I’ve discovered that most of the time, focusing efforts on building a bright future is the best way for people to manage their bankruptcy and succeeding recovery. To do this, however, people have to appreciate exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most proficient way possible.


One of the most common questions I get asked is related to how bankruptcy will influence child support payments. Although this topic may seem rather 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 resolve some of that confusion.


Does bankruptcy release child support debts?

Although bankruptcy releases you from a variety 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 phone 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 dispute this.


How is child support determined?

The DHS is responsible for overseeing and working with separated parents on child support assessments. To ascertain how much child support you must pay, the DHS review both your income and your care percentage of the children involved. By utilising your previous tax return as a measure, the DHS will use these numbers to ascertain your expected income for the upcoming year. This emphasises the value of keeping your tax returns up to date, and any changes to your circumstances should be disclosed to the DHS immediately.


Income contributions to your bankrupt estate

An income threshold is utilised to determine 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 influence your income threshold. The following table features the related threshold limits as of September 2017:


The DHS define a dependent as somebody who lives with you most of the time and earns no more than $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


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


As an example, if you earn $110,000 each year before tax, you’ll most likely be paying about $30,500 every 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 approximately $986 per month).


Child support contributions.

Your child support contributions are deducted 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 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 figure out your bankruptcy payments as follows:.


($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or roughly $361 per month).



While blending family law and bankruptcy can be a little complex, there’s always somebody to help you at Bankruptcy Experts Cassowary Coast. If you have any more concerns 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 more information: