Filing for bankruptcy certainly isn’t the end of the world, but it does have severe repercussions that will impair your finances in the coming years. I’ve found that most of the time, focusing efforts on developing a bright future is the best way for folks to handle their bankruptcy and succeeding recovery. To do this, however, individuals must realise exactly what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most common questions I get asked relates to how bankruptcy will have a bearing on child support payments. Whilst 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?

Even though bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a significant amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to get in touch with the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you feel the assessment presented by the DHS is incorrect, you can dispute this.


How is child support figured out?

The DHS is in charge of managing and dealing with separated parents on child support assessments. To figure out how much child support you must pay, the DHS evaluate both your income and your care percentage of the children involved. By utilising your latest tax return as a measure, the DHS will use these numbers to ascertain your expected income for the forthcoming year. This showcases the importance of keeping your tax returns up to date, and any adjustments to your circumstances should be presented to the DHS as quickly as possible.


Income contributions to your bankrupt estate

An income threshold is used to establish 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, child support payments, income tax, salary sacrificing, and fringe benefits will have an effect on your income threshold. The following table features 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 under $3,539 every year.


Assuming you earn over the income threshold, your trustee would determine your income contributions to your bankruptcy estate with the following formula:.


(assessable income – income threshold amount) ÷ 2


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


For instance, if you earn $110,000 annually before tax, you’ll most likely be paying roughly $30,500 each 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 determine your bankruptcy payments as follows:.


($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or around $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 each year, your assessable income would be reduced 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 around $361 monthly).



While mixing family law and bankruptcy can be slightly complex, there’s always someone to assist you at Bankruptcy Experts Whitsundays. If you have any further concerns relating to bankruptcy and child support payments, or you just need some friendly advice, speak with our team on 1300 795 575, or alternatively visit our website for further information: