Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and difficult to understand. A question we commonly get asked here at Bankruptcy Experts Bunbury is 'what happens to my super if I apply for Bankruptcy'? The reply for most is easy, if your super is simply in a regulated fund or industry fund like Sunsuper or Host Plus then very little happens; your super is 100 % safe when it involves Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, take into account the expanding number of members of Self-Managed Super Funds ("SMSFs") in recent years; the ATO tells us it has grown Australia-wide from 758,589 in 2009 to 1,011,689 in 2014. So what happens to these Superfunds when it comes down to Bankruptcy?

Remember Bankruptcy Experts Bunbury is not indicating this short article is the whole story, if you have any questions feel free to consult with us on 1300 795 575. Whether or not you call us or another person it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF actually we encourage you ask for both legal and financial advice before proceeding with any of the actions recommended in this article.

What is a Disqualified Person?

First and foremost, if you are taking into account Bankruptcy, you can not be a part of a SMSF. Why? Because if you are coping with bankruptcy, you will be classified as a 'disqualified person'. And a disqualified person cannot operate as an Individual Trustee. This poses a problem because usually most of the SMSFs are just 2 people, which means the two of these members will need to also be the individual trustees. The duty of trustee sets a lot of legal rules, and if you are in this role I would highly urge you to end up being familiar with them all-- including the fact that you can not 'know or suspect' that one of you are bankrupt. So you can notice how an individual bankruptcy can be very destructive to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

How much time do I have to restructure my SMSF Fund after I'm bankrupt?

So what develops if one of the members of an SMSF does enter Bankruptcy?

For starters, the SMSF will need to be reorganized. This means that you will have to consider your overall structure and ensure that it is meeting the basic conditions, including things like having a new trustee that is not encountering issues with Bankruptcy. The Australian Tax office will offer you a 6 month 'grace period' to get this done before you face penalties. And bear in mind, sometimes the absolute best plan would be to simply roll the fund into an industry or corporate fund.

Beyond these large scale reorganizing issues, there is a lot of paperwork to deal with too, and you need to be continuously keeping the ATO informed of what is happening. This means you have to let them know that you have a bankruptcy problem with your current trustee, that they are being removed as soon as possible know who the new trustee/director is. The Bankrupt will also have to inform the ATO using the form NAT 3036 (Found on the ATO website) and they must also notify ASIC of their resignation.

In the course of that 6 month period you will need to remove the Bankrupt from the SMSF-- including their property and assets. Remember if you are unsure call Bankruptcy Experts Bunbury for some free advice on 1300 795 575.

What if I use a single member fund?

If you are a single member fund, then you will have to appoint a new director, and it will then end up being their responsibility to oversee the sale and relocation of assets into a managed fund. If there are two or more members, than the bankrupt member will need to resign and the other member will take away the property and halve the proceeds. They would then have to decide if they wish to remain as a single member SMSF, or if they intend to roll it all into a managed fund. If both members are entering bankruptcy, then they would definitely need to sell all assets right away and move the liquid assets to the managed fund.

From that you can see how when it comes to Bankruptcy, even though one single member is dealing with issues, it can affect the very existence of an SMSF. If you are at the moment facing this issue yourself, or with a partner in a SMSF, please seek financial advice to make certain you are meeting the ATO requirements.

A simple solution ...

As I suggested earlier, a basic solution to your SMSF problem is to put your super back into a normal regulated managed fund prior to bankruptcy and save yourself all the problems outlined above. Bankruptcy is never easy, but getting proper advice is the best initial step. If you want to discuss your options further, call us at Bankruptcy Experts Bunbury or visit our website: www.bankruptcyexpertsBunbury.com.au or just give us a call on 1300 795 575.