Bankruptcy and Child Support – Everything You Should Know

Home/bankrupt, blog/Bankruptcy and Child Support – Everything You Should Know

Bankruptcy and Child Support – Everything You Should Know

Declaring bankruptcy definitely isn’t the end of the world, but it does have severe repercussions that will impair your finances in the future. I’ve found that most of the time, focusing efforts on developing a bright future is the best way for people to tackle their bankruptcy and subsequent recovery. To do this, however, people have to comprehend exactly what bankruptcy entails so they can effectively 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 fairly straightforward, I’ve found that it causes a lot of misunderstanding so today we’re going to take a closer look and attempt to resolve some of that confusion.


Does bankruptcy cover child support debts?

Whilst 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 get in touch with the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you think the assessment delivered by the DHS is incorrect, you can challenge this.


How is child support measured?

The DHS is accountable for managing and dealing with separated parents on child support assessments. To ascertain 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 disclosed to the DHS as soon as possible.


Income contributions to your bankrupt estate

An income threshold is utilised to determine if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, matters like the number of dependents, income tax, child support payments, salary sacrificing, and fringe benefits will alter your income threshold. The following table reveals 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 below $3,539 annually.


Assuming you earn over the income threshold, your trustee would calculate 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 off the debts in your bankrupt estate.


For instance, if you earn $110,000 yearly before tax, you’ll likely be paying roughly $30,500 every 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 approximately $986 each 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 annually, 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).



While combining family law and bankruptcy can be a little perplexing, there’s always someone to help you at Gold Coast Bankruptcy Centre. If you have any more queries 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:


By | 2018-09-24T06:27:47+00:00 September 24th, 2018|bankrupt, blog|0 Comments

About the Author: