Bankruptcy and Child Support – Everything You Should Know

Filing for bankruptcy really isn’t the end of the world, but it does have significant implications that will affect your finances in the years to come. I’ve discovered that in most cases, focusing efforts on building a bright future is the best way for people to handle their bankruptcy and succeeding recovery. To do this, however, people must be aware of exactly what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most routine questions I get asked relates to how bankruptcy will have an effect on child support payments. While this topic may seem pretty straightforward, I’ve found that it creates a lot of misunderstanding so today we’re going to take a closer look and attempt to clear up 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 sizable amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to contact the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment provided by the DHS is incorrect, you can contest this.


How is child support calculated?

The DHS is accountable for managing 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 previous tax return as a measure, the DHS will use these figures to calculate your expected income for the upcoming year. This highlights the value of keeping your tax returns up to date, and any changes to your circumstances should be relayed to the DHS as soon as possible.


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 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 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 under $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


As a result, 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 yearly before tax, you’ll probably be paying about $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 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 previous example, if you are required to pay $15,000 in child support payments every year, your assessable income would be decreased 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 about $361 monthly).



Although blending family law and bankruptcy can be slightly complex, there’s always somebody to assist you at Bankruptcy Experts Geelong. If you have any more concerns relating to bankruptcy and child support payments, or you just need some friendly advice, speak to our team on 1300 795 575, or alternatively visit our website for additional information:


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