September 11, 2018 0

Bankruptcy and Child Support – Everything You Need to Know

Posted by:Charles Bosse onSeptember 11, 2018

Filing for bankruptcy definitely isn’t the end of the world, but it does have considerable repercussions that will impair your finances in the coming years. I’ve discovered that most of the time, focusing efforts on building a bright future is the best way for folks to deal with their bankruptcy and subsequent recovery. To do this, however, folks have to grasp precisely what bankruptcy entails so they can successfully budget, plan, and rebuild their wealth in the most proficient way possible.

One of the most frequent questions I get asked pertains to how bankruptcy will have a bearing on child support payments. Even though this topic may appear to be relatively straightforward, I’ve found that it causes a lot of misunderstanding so today we’re going to take a closer look and try to resolve some of that confusion.


Does bankruptcy release child support debts?

Whilst bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a hefty amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to call the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you believe the assessment presented by the DHS is inaccurate, you can dispute this.


How is child support gauged?

The DHS is in charge of supervising and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS review both your income and your care percentage of the children involved. By utilising your latest tax return as a benchmark, the DHS will use these numbers to determine your expected income for the forthcoming year. This highlights the benefit of keeping your tax returns up to date, and any changes to your circumstances should be declared to the DHS as quickly as possible.


Income contributions to your bankrupt estate

An income threshold is utilised to determine if a bankrupt person can afford to contribute some of their income to settle the debts in their bankrupt estate. Despite this, matters like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits 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 someone who lives with you most of the time and earns less than $3,539 each year.

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


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

As an example, if you earn $110,000 each year before tax, you’ll likely be paying approximately $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 subtracted 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 each year, your assessable income would be decreased from $79,500 (income after tax) to $64,500.

After supplying 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 around $361 per month).



Even though blending family law and bankruptcy can be a little complex, there’s always somebody to assist you at Fresh Start Solutions Sydney. If you have any additional questions relating to bankruptcy and child support payments, or you just need some friendly advice, speak with our team on 1300 818 575, or alternatively visit our website for more information:


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