Declaring bankruptcy definitely isn’t the end of the world, but it does have heavy implications that will affect your finances in the future. I’ve found that most of the time, focusing efforts on creating a bright future is the best way for people to manage their bankruptcy and succeeding recovery. To do this, however, individuals need to comprehend precisely what bankruptcy entails so they can accurately budget, plan, and rebuild their wealth in the most proficient way possible.


One of the most concerning questions I get asked relates to how bankruptcy will impact child support payments. Although this topic may seem pretty straightforward, I’ve found that it creates 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?

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 file for bankruptcy, it will not be released in bankruptcy so it’s best to connect with the Department of Human Services (DHS) and discuss a repayment plan. If, for whatever reason, you feel the assessment presented by the DHS is incorrect, you can dispute this.


How is child support measured?

The DHS is in charge of regulating and working with separated parents on child support assessments. To establish how much child support you must pay, the DHS look at both your income and your care percentage of the children involved. By using your latest tax return as a measure, the DHS will use these numbers to figure out your anticipated income for the forthcoming year. This emphasises the benefit of keeping your tax returns up to date, and any adjustments to your circumstances should be disclosed to the DHS immediately.


Income contributions to your bankrupt estate

An income threshold is utilised to figure out if a bankrupt person can afford to contribute some of their income to settle 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 influence your income threshold. The following table features 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 under $3,539 annually.


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


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


As an example, if you earn $110,000 annually before tax, you’ll likely be paying roughly $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 determine your bankruptcy payments as follows:.


($79,500 – $55,837.60) ÷ 2 = $11,831.20 (or about $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 annually, 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 about $361 monthly).



While mixing family law and bankruptcy can be slightly perplexing, there’s always someone to assist you at Bankruptcy Experts Rockhampton. If you have any further inquiries relating to bankruptcy and child support payments, or you just need some friendly advice, speak to our team on 1300 795 575, or alternatively visit our website for more information: