Declaring bankruptcy certainly isn’t the end of the world, but it does have severe implications that will impair your finances in the future. I’ve discovered that in many 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, folks need to understand precisely what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most productive way possible.


One of the most common questions I get asked pertains to how bankruptcy will influence child support payments. Whilst this topic may appear to be fairly straightforward, I’ve found that it creates 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 variety of debts, child support is not one of them. If you owe a hefty amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to talk to the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you believe the assessment supplied by the DHS is inaccurate, you can challenge this.


How is child support figured out?

The DHS is responsible for regulating and dealing with separated parents on child support assessments. To calculate how much child support you must pay, the DHS evaluate 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 figure out your estimated income for the coming year. This showcases the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be disclosed to the DHS immediately.


Income contributions to your bankrupt estate

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


The DHS define a dependent as someone 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 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 pay the debts in your bankrupt estate.


For instance, if you earn $110,000 each year before tax, you’ll most likely be paying roughly $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 about $986 monthly).


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 every year, your assessable income would be reduced from $79,500 (income after tax) to $64,500.


After delivering 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 approximately $361 monthly).



Even though mixing family law and bankruptcy can be a little perplexing, there’s always someone to help you at Bankruptcy Experts Dandenong. If you have any additional 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 further information:

Bankruptcy and Child Support – Everything You Should Know