Declaring bankruptcy certainly isn’t the end of the world, but it does have severe repercussions that will have a bearing on your finances in the years to come. I’ve discovered that in many cases, focusing efforts on creating a bright future is the best way for folks to deal with their bankruptcy and succeeding recovery. To do this, however, people need to realise precisely what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most proficient way possible.


One of the most routine questions I get asked relates to how bankruptcy will influence child support payments. Although this topic may appear to be relatively straightforward, I’ve found that it leads to a lot of misunderstanding so today we’re going to take a closer look and try to clear up some of that confusion.


Does bankruptcy release child support debts?

Although bankruptcy releases you from a wide range of debts, child support is not one of them. If you owe a large amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to reach out to the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment given by the DHS is wrong, you can challenge this.


How is child support gauged?

The DHS is in charge of regulating and working with separated parents on child support assessments. To establish how much child support you must pay, the DHS inspect both your income and your care percentage of the children involved. By using your latest tax return as a measure, the DHS will use these figures to determine your expected income for the coming year. This showcases the value of keeping your tax returns up to date, and any changes to your circumstances should be presented to the DHS immediately.


Income contributions to your bankrupt estate

An income threshold is used to determine if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, issues like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will influence 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 no more than $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


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


As an example, if you earn $110,000 each year before tax, you’ll most likely be paying close to $30,500 every 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 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 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 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 about $361 monthly).



Whilst combining family law and bankruptcy can be a little complex, there’s always somebody to assist you at Bankruptcy Experts Port Stephens. If you have any more queries relating to bankruptcy and child support payments, or you just need some friendly advice, talk to our team on 1300 795 575, or alternatively visit our website for more information:


Bankruptcy and Child Support – Everything You Should Know