Bankruptcy and Child Support: What You Need to Know
If you are considering declaring bankruptcy and are currently paying child support, it is vital to understand how bankruptcy and child support interact and what your ongoing responsibilities are.
When people find themselves in dire financial straits and can no longer meet their financial commitments, bankruptcy may be the only option available to clear their debts.
When the person declaring bankruptcy (a debtor) has children, they will have to take into account their child support responsibilities along with their other financial commitments and debts.
While the debtor will have ongoing child support payments, they might also be in arrears of child support payments at the time they become bankrupt.
In this case, they will either need to make an arrangement with Services Australia to pay back the debt or make a private, legally binding arrangement with their ex.
Child Support Payments in Australia
Services Australia (previously Centrelink) is responsible for administering the child support assessment scheme in Australia.
Generally, your financial obligations when it comes to child support payments will be determined by looking at two factors.
Firstly, your previous year’s tax return will be used to estimate what your income for the upcoming year will be. Making sure you lodge accurate up to date tax returns will ensure your child support payments are proportional to your actual income and you don’t end up paying more than your fair share.
Secondly, Services Australia will look at the division of care between the children’s parents or guardians.
The Bankruptcy Act 1966 contains specific provisions relating to when the parent or legal guardian of a child becomes bankrupt in Australia. The aim of these is to protect the rights of a child to receive ongoing financial support.
Bankruptcy and Child Support Debt
Many people who file for bankruptcy mistakenly believe they will be released from all of their debts, including child support debt.
How does bankruptcy and child support debt work with another?
If there is proof you have child support liabilities, this debt is treated differently to most other debt under the Bankruptcy Act.
Section 58 (5A) of the Bankruptcy Act 1966 provides that:-
- Nothing in this section (58) shall be taken to prevent the creditor from enforcing any remedy against a bankrupt or against any property of the bankrupt that is not vested in the Trustee of the bankrupt, in respect of any liability of the bankrupt under:-
- A maintenance agreement.
- A maintenance order.
This basically means that any person declared bankrupt can be pursued for child support debt, regardless of their current financial status.
You are also required to continue paying ongoing maintenance in line with your current income and child care arrangements.
If you have a large child support debt and are facing bankruptcy, it is advisable to talk to an experienced family lawyer. They can help you navigate the legal implications of bankruptcy and ongoing child maintenance.
Principal of Justice Family Lawyers, Hayder specialises in complex parenting and property family law matters. He is based in Sydney and holds a Bachelor of Law and Bachelor of Communications from UTS.