Bankruptcy and Child Support Payments – The Child Support Debt Survives Bankruptcy

15/10/2017

The Bankruptcy Act 1966 provides a regime for management of the affairs of someone who becomes a Bankrupt.  A person can become a Bankrupt when they cannot pay their debts as and when they fall due.  This can be as a result of the presentation of a Creditor’s Petition by one of the entities to whom the debtor owes money or; a Debtor’s Petition filed by the person who is unable to pay his or her debt when it falls due.  Both processes result in a person becoming a Bankrupt. 

Once a person becomes Bankrupt his or her property vests in the Trustee in Bankruptcy.  The management of his or her financial affairs is conducted by the Trustee.

The Bankrupt will only be allowed to retain their most basic possessions like furniture, tools of trade and clothing.  All property over a certain value vests in the person’s Trustee in Bankruptcy.

People to whom the Bankrupt owes money are called Creditors.  Once a person becomes a Bankrupt the Creditor must “prove” in the Bankruptcy.  The Trustee will determine what debts can be paid and how much can be paid to each Creditor.  This is subject to “appeals” to a Court.

A bankrupt person may have an arrears of a Child Support Liability.  In other words, the bankrupt person may be required to pay child support in respect of his or her child on an ongoing basis and might also be in arrears of payment of that child support at the time he or she became Bankrupt.

Some people who become Bankrupt think that all their debts will be “wiped out” after 3 years as a Bankrupt.  This is not the case. While some debts survive Bankruptcy – They do not go away.

The Bankruptcy Act 1966 contains special provisions which relates to child support and protects the rights of a child to payment of child support.  Child support liabilities can be enforced against the Bankrupt.  Child Support is one of the maintenance liabilities that is treated differently to other debts.

The process is as follows:

Section 58 of the Bankruptcy Act 1966 has an exception that applies to a Child Support liability.  Section 58 (5A) provides that:-

  1. 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:-
  1. A maintenance agreement.
  2. A maintenance order.

A Child Support debt is such a liability.  A Bankrupt can be pursued for arrears of Child Support or maintenance liabilities.

If you are experiencing default or arrears of child support payments due to the bankruptcy of the payor parent, please do not hesitate to contact Richard Watson, our experienced family law solicitor or his assistant Shereen Da Gloria to discuss any concerns you may have.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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