Filing for bankruptcy certainly isn’t the end of the world, but it does have severe repercussions that will have an effect on your finances in the future. I’ve discovered that in many cases, focusing efforts on developing a bright future is the best way for people to manage their bankruptcy and succeeding recovery. To do this, however, individuals have to realise precisely what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most concerning questions I get asked is related to how bankruptcy will affect child support payments. While this topic may seem rather straightforward, I’ve found that it causes 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?

Although bankruptcy releases you from a variety of debts, child support is not one of them. If you owe a hefty amount of money in child support when you declare 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 feel the assessment provided by the DHS is wrong, you can contest this.


How is child support figured out?

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 review both your income and your care percentage of the children involved. By utilising your last tax return as a measure, the DHS will use these numbers to figure out your anticipated income for the forthcoming year. This emphasises the value of keeping your tax returns up to date, and any changes to your circumstances should be declared to the DHS immediately.


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 pay off the debts in their bankrupt estate. Despite this, factors like income tax, the number of dependents, fringe benefits, salary sacrificing, and child support will have an effect on your income threshold. The following table exhibits 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 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


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


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


After presenting 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 approximately $361 each month).



Although blending family law and bankruptcy can be a little complicated, there’s always someone to help you at Bankruptcy Experts Albury. If you have any further inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, get in contact with our team on 1300 795 575, or alternatively visit our website for additional information: