Filing for bankruptcy certainly isn’t the end of the world, but it does have meaningful consequences that will impair your finances in the coming years. I’ve discovered that in many cases, focusing efforts on building a bright future is the best way for folks to handle their bankruptcy and succeeding recovery. To do this, however, people have to grasp precisely what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most common questions I get asked is related to how bankruptcy will influence child support payments. Although this topic may appear to be 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?

Even though bankruptcy releases you from a wide range of debts, child support is not one of them. If you owe a considerable amount of money in child support when you declare bankruptcy, it will not be released in bankruptcy so it’s best to reach out to the Department of Human Services (DHS) and arrange a repayment plan. If, for whatever reason, you think the assessment supplied by the DHS is incorrect, you can dispute this.


How is child support gauged?

The DHS is responsible for managing and working with separated parents on child support assessments. To calculate how much child support you must pay, the DHS take a look at 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 calculate your anticipated income for the upcoming year. This showcases the benefit of keeping your tax returns up to date, and any changes to your circumstances should be presented to the DHS as soon as possible.


Income contributions to your bankrupt estate

An income threshold is used to verify if a bankrupt person can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, variables like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will have a bearing on your income threshold. The following table displays 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 annually.


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


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 annually before tax, you’ll most likely be paying roughly $30,500 each 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 determine 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 each 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 figure out your bankruptcy payments as follows:.


($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or approximately $361 monthly).



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