Filing for bankruptcy really isn’t the end of the world, but it does have heavy consequences that will affect your finances in the coming years. I’ve discovered that in many cases, focusing efforts on developing a bright future is the best way for individuals to tackle their bankruptcy and subsequent recovery. To do this, however, individuals have to grasp exactly what bankruptcy entails so they can properly budget, plan, and rebuild their wealth in the most efficient way possible.


One of the most frequent questions I get asked pertains to how bankruptcy will affect child support payments. Whilst this topic may seem relatively straightforward, I’ve found that it causes 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 range of debts, child support is not one of them. If you owe a large amount of money in child support when you file for bankruptcy, it will not be released in bankruptcy so it’s best to speak with the Department of Human Services (DHS) and negotiate a repayment plan. If, for whatever reason, you feel the assessment given by the DHS is incorrect, you can contest this.


How is child support calculated?

The DHS is in charge of regulating and working with separated parents on child support assessments. To determine how much child support you must pay, the DHS examine both your income and your care percentage of the children involved. By utilising your latest tax return as a benchmark, the DHS will use these numbers to ascertain your anticipated income for the upcoming year. This showcases the value 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 used to verify if a bankrupt person can afford to contribute some of their income to repay the debts in their bankrupt estate. Despite this, variables like child support, the number of dependents, income tax, fringe benefits, and salary sacrificing will have an effect on your income threshold. The following table reveals the specific 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 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


As a result, every 50 cents you earn over your income threshold will be used to pay the debts in your bankrupt estate.


For instance, if you earn $110,000 annually before tax, you’ll likely be paying close to $30,500 each 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 roughly $986 monthly).


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 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 determine your bankruptcy payments as follows:.


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



Although mixing family law and bankruptcy can be a little perplexing, there’s always someone to help you at Bankruptcy Experts Rockingham. If you have any more questions relating to bankruptcy and child support payments, or you just need some friendly advice, reach out to our team on 1300 795 575, or alternatively visit our website for further information: