Declaring bankruptcy definitely isn’t the end of the world, but it does have significant repercussions that will impair your finances in the coming years. I’ve discovered that in most cases, focusing efforts on developing a bright future is the best way for individuals to manage their bankruptcy and consecutive recovery. To do this, however, folks need to be aware of exactly what bankruptcy entails so they can effectively budget, plan, and rebuild their wealth in the most productive way possible.


One of the most frequent questions I get asked pertains to how bankruptcy will have an effect on child support payments. Whilst this topic may appear to be rather straightforward, I’ve found that it leads to 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?

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


How is child support calculated?

The DHS is responsible for managing and dealing with separated parents on child support assessments. To determine how much child support you must pay, the DHS assess both your income and your care percentage of the children involved. By utilising your previous tax return as a measure, the DHS will use these numbers to figure out your expected income for the coming year. This highlights the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be reported 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, issues 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 reveals 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 no more than $3,539 each 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 pay off the debts in your bankrupt estate.


As an example, if you earn $110,000 yearly before tax, you’ll probably 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 calculate your bankruptcy payments as follows:.


($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or approximately $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 each year, your assessable income would be reduced 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 roughly $361 each month).



Whilst mixing family law and bankruptcy can be a little complex, there’s always someone to help you at Bankruptcy Wagga Wagga. If you have any additional inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, talk with our team on 1300 818 575, or alternatively visit our website for additional information: