September 11, 20180

Bankruptcy and Child Support – Everything You Have to Know

Posted by:Charles Bosse onSeptember 11, 2018

Declaring bankruptcy most certainly isn’t the end of the world, but it does have severe repercussions that will impair your finances in the future. I’ve discovered that most of the time, focusing efforts on building a bright future is the best way for individuals to handle their bankruptcy and subsequent recovery. To do this, however, folks need to comprehend exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most productive way possible.

One of the most routine questions I get asked pertains to how bankruptcy will influence child support payments. While this topic may appear to be relatively straightforward, I’ve found that it creates 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?

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


How is child support measured?

The DHS is responsible for overseeing and dealing with separated parents on child support assessments. To calculate how much child support you must pay, the DHS consider both your income and your care percentage of the children involved. By using your latest tax return as a benchmark, the DHS will use these numbers to calculate your estimated 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 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 pay off 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 affect your income threshold. The following table features the related threshold limits as of September 2017:

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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 determine your income contributions to your bankruptcy estate with the following formula:.

(assessable income – income threshold amount) ÷ 2


Hence, 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 yearly before tax, you’ll most likely be paying around $30,500 every 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 about $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 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 combining family law and bankruptcy can be slightly complex, there’s always someone to help you at Fresh Start Solutions. If you have any more queries relating to bankruptcy and child support payments, or you just need some friendly advice, call our team on 1300 818 575, or alternatively visit our website for further information:


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