Bankruptcy and Child Support – Everything You Should Know


Declaring bankruptcy really isn’t the end of the world, but it does have significant implications that will impact your finances in the future. I’ve discovered that in most cases, focusing efforts on building a bright future is the best way for individuals to handle their bankruptcy and consecutive recovery. To do this, however, folks must comprehend precisely 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 have a bearing on child support payments. While this topic may seem relatively 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?

While 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 phone the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you think the assessment provided by the DHS is wrong, you can dispute this.


How is child support figured out?

The DHS is in charge of overseeing and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS consider both your income and your care percentage of the children involved. By using your last tax return as a measure, the DHS will use these figures to ascertain your expected income for the coming year. This showcases the importance of keeping your tax returns up to date, and any alterations 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, income tax, child support payments, salary sacrificing, and fringe benefits will have an effect on your income threshold. The following table features the related 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 each year.


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


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


For example, if you earn $110,000 annually before tax, you’ll probably 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 roughly $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 yearly, your assessable income would be decreased 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 mixing family law and bankruptcy can be slightly confusing, there’s always someone to assist you at Bankruptcy Experts Toowoomba. If you have any additional queries 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 further information:


  • Comments are closed.