September 11, 2018 0

Bankruptcy and Child Support – Everything You Have to Know

Posted by:Charles Bosse onSeptember 11, 2018

Filing for bankruptcy most certainly isn’t the end of the world, but it does have heavy implications that will impair your finances in the years to come. I’ve discovered that most of the time, focusing efforts on developing a bright future is the best way for individuals to handle their bankruptcy and consecutive recovery. To do this, however, individuals must grasp exactly what bankruptcy entails so they can properly budget, plan, and rebuild their wealth in the most proficient way possible.

One of the most frequent questions I get asked relates to how bankruptcy will influence child support payments. Even though this topic may seem fairly straightforward, I’ve found that it leads to 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 cover child support debts?

While bankruptcy releases you from a wide variety of debts, child support is not one of them. If you owe a sizable 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 arrange a repayment plan. If, for whatever reason, you think the assessment provided by the DHS is inaccurate, you can contest this.


How is child support calculated?

The DHS is in charge of overseeing and working with separated parents on child support assessments. To calculate how much child support you must pay, the DHS 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 figures to ascertain your anticipated income for the coming year. This emphasises the importance of keeping your tax returns up to date, and any changes to your circumstances should be presented to the DHS as quickly as possible.


Income contributions to your bankrupt estate

An income threshold is utilised to ascertain if a bankrupt individual can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, issues like the number of dependents, child support payments, income tax, salary sacrificing, and fringe benefits will alter your income threshold. The following table displays the specific 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 every 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


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

For example, if you earn $110,000 annually before tax, you’ll likely be paying around $30,500 each 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 per 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 previous example, if you are required to pay $15,000 in child support payments every year, your assessable income would be decreased from $79,500 (income after tax) to $64,500.

After providing your trustee with a copy of your child support assessment from the DHS, your trustee would calculate your bankruptcy payments as follows:.

($64,500 – $55,837.60) ÷ 2 = $4,331.20 (or about $361 per month).



Whilst combining family law and bankruptcy can be a little complicated, there’s always somebody to help you at Fresh Start Solutions Hobart. If you have any additional queries relating to bankruptcy and child support payments, or you just need some friendly advice, get in touch with our team on 1300 818 575, or alternatively visit our website for more information:


Leave a Reply

Your email address will not be published. Required fields are marked *

Copyrights © Fresh Start Solution.