Bankruptcy and Child Support – Everything You Have to Know

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Bankruptcy and Child Support – Everything You Have to Know

Filing for bankruptcy really isn’t the end of the world, but it does have considerable consequences that will have a bearing on your finances in the years to come. I’ve discovered that most of the time, focusing efforts on creating a bright future is the best way for folks to manage their bankruptcy and consecutive recovery. To do this, however, people have to appreciate exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most functional way possible.


One of the most concerning questions I get asked relates to how bankruptcy will impact child support payments. Although this topic may seem pretty 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 release child support debts?

Whilst bankruptcy releases you from a wide variety 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 consult the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you feel the assessment delivered by the DHS is wrong, you can contest this.


How is child support figured out?

The DHS is accountable for overseeing and working with separated parents on child support assessments. To establish 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 benchmark, the DHS will use these numbers to ascertain your expected income for the coming year. This highlights the value 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 utilised to establish if a bankrupt individual can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, variables like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will influence 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 no more than $3,539 yearly.


Assuming you earn over the income threshold, your trustee would figure out 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.


For example, if you earn $110,000 annually before tax, you’ll likely be paying roughly $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 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 above example, if you are required to pay $15,000 in child support payments annually, your assessable income would be reduced 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 roughly $361 each month).



While blending family law and bankruptcy can be a little complicated, there’s always someone to help you at Bankruptcy Experts Mildura. If you have any additional concerns relating to bankruptcy and child support payments, or you just need some friendly advice, contact our team on 1300 795 575, or alternatively visit our website for additional information:


By |2018-09-18T02:48:58+00:00September 18th, 2018|Articles, bankruptcy, blog|0 Comments

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