The effects of bankruptcy on child support

Restructuring Insights

Most formal child support arrangements fall within the definition of a maintenance agreement or maintenance order as defined by Section 5(1) of the Bankruptcy Act 1966 (Act).Most formal child support arrangements fall within the definition of a maintenance agreement or maintenance order as defined by Section 5(1) of the Bankruptcy Act 1966 (Act).

The Act includes provisions outlining the ways in which child support is affected by bankruptcy.

It is therefore important for both parties to a formal child support arrangement to understand their rights and the implications of bankruptcy on child support debt and payments.


Child support payable by the bankrupt

According to bankruptcy legislation, while child support outstanding at the date of bankruptcy is a provable debt in bankruptcy, it is not extinguished by bankruptcy.

This means that the non-bankrupt parent can:

  • participate in any dividends in the bankruptcy; and
  • continue to pursue payment of the child support debt during and after the bankruptcy.

While a child support debt incurred after the date of bankruptcy is not a provable debt, it is not extinguished by bankruptcy. This means that the non-bankrupt parent can continue to pursue payment of the child support debt but cannot participate in any dividends in the bankruptcy.


Child support paid or received by the bankrupt during bankruptcy

When a bankrupt’s assessable income exceeds a certain amount (subject to number of dependants), they are required to pay contributions to their estate. For each year of bankruptcy, the Trustee uses a formula prescribed by the Act to calculate the assessable income and resultant contributions (if any) payable by a bankrupt.Child support paid or received by the bankrupt during bankruptcy.

In calculating the assessable income of a bankrupt, the Trustee:

  • Deducts any formal child support paid by the bankrupt during the period; and/or
  • Excludes any formal child support received by the bankrupt during the period.

When providing details of income to their Trustee, a bankrupt should also disclose their child support position. This will enable the Trustee to make any necessary adjustments to their assessment of income.

For more information

If you would like further information about bankruptcy and child support, please contact your local RSM office