Child Support and Bankruptcy

When the parents of children under 18 separate, a court will order one parent to pay child support to the other parent to ensure they meet their share of the financial responsibility in raising their children. Many factors determine how much child support each parent is expected to pay.

Parents who have found themselves bankrupt may wonder whether their child support obligations and arrears will continue to be enforced. If you’ve found yourself in this situation, read on for some answers to some commonly asked questions.

What is Bankruptcy?

A person is bankrupt when they do not have sufficient means to pay their outstanding debts, and they may be forced into bankruptcy by one or all, of their creditors, or they may decide to declare themselves bankrupt (by a debtor’s petition).

Once a person is declared bankrupt, a trustee will take ownership of most of their assets. It then becomes the trustee’s responsibility to sell those assets and distribute any funds among the creditors by the provisions of the Bankruptcy Act.

How does bankruptcy affect the paying parent?

One of the most common questions is the effect of Child Support and Bankruptcy. The simple answer is that when one parent files for bankruptcy, their obligation to pay child support does not change. The courts will still order the bankrupt parent to pay what they owe in child support using the child support calculator, with few exceptions to this rule.

The Australian Government ensures that child support will not be compromised whenever a person is declared bankrupt by making it a unique ‘maintenance liability’ under the Bankruptcy Act. Therefore, any child support obligations or arrears can still be enforced despite a parent’s bankruptcy, and the Child Support Registrar can take action to enforce any missed payments.

How can the Registrar collect child support from a Bankrupt parent?

If a non-custodial parent goes bankrupt, they may not have any way of paying their child support, so parents may wonder how they can recover the money.

If a dividend is likely paid to the creditors, then the Child Support Registrar may lodge a proof of debt with the trustee. But in the event of no dividend, there are several other ways the Registrar can collect child support from a bankrupt parent. These may include:

• Any property the payer is entitled to keep can be the subject of legal proceedings by the Registrar. However, the property left with a debtor after bankruptcy is usually of little value and unlikely to produce much towards satisfying any child support debt.
• The Registrar can use specific powers, such as tax intercepts, salary deduction and deduction of arrears from salary.
• By negotiating voluntary payment arrangements between parties.

It is important to note that after a discharge from bankruptcy, the Registrar can still recover child support payments and arrears relating to the period before the bankruptcy.