Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and confusing. A question we usually get asked here over at Bankruptcy Experts Geelong is 'what happens to my super if I file for Bankruptcy'? The solution for most is easy, if your super is actually in a regulated fund or industry fund like Sunsuper or Host Plus then very little happens; your super is 100 % safe when it comes down to Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, take into consideration the evolving number of members of Self-Managed Super Funds ("SMSFs") over the last few 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 concerns Bankruptcy?

Remember Bankruptcy Experts Geelong is not proposing this post is the whole story, if you have any questions feel free to consult with us on 1300 795 575. No matter if you call us or another person it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF in truth we suggest you find both legal and financial advice before proceeding with any of the actions indicated 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 going up against bankruptcy, you will be categorized as a 'disqualified person'. And a disqualified individual cannot operate as an Individual Trustee. This poses a problem since usually most of the SMSFs are just 2 people, which means both of these members must also be the individual trustees. The position 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-- for example the fact that you can not 'know or suspect' that one of you are bankrupt. So you can see how an individual bankruptcy can be rather harmful to a SMSF and as you can assume the process of Bankruptcy for a SMSF is rather convoluted.

How long do I have so as to restructure my SMSF Fund once I'm bankrupt?

So what comes about 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 need to consider your extensive structure and make sure it is meeting the basic conditions, involving having a new trustee that is not having issues with Bankruptcy. The Australian Tax office will provide 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 restructuring issues, there is a lot of paperwork to deal with too, and you need to be frequently keeping the ATO informed of what is happening. This indicates you ought to let them know that you have a bankruptcy complication with your current trustee, that they are being removed as soon as possible know who the new trustee/director is. The Bankrupt will also need to inform the ATO using the form NAT 3036 (Found on the ATO website) and they will need to also notify ASIC of their resignation.

Over that 6 month period you will need to remove the Bankrupt from the SMSF-- including their property and assets. Remember if you are not exactly sure call Bankruptcy Experts Geelong 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 need to appoint a new director, and it will then be 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 clear away the property and halve the proceeds. They would then need to decide if they choose to remain as a single member SMSF, or if they intend to roll everything into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets at once and transfer the liquid assets to the managed fund.

From this you can notice how when it comes to Bankruptcy, even if one single member is running into issues, it can affect the very existence of an SMSF. If you are right now facing this trouble yourself, or with a partner in a SMSF, please seek financial advice to make sure you are satisfying the ATO requirements.

A simple solution ...

As I proposed earlier, a simple solution to your SMSF problem is to put your super back into a normal regulated managed fund before 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 possibilities further, give us a call at Bankruptcy Experts Geelong or visit our website: www.bankruptcyexpertsGeelong.com.au or just call us on 1300 795 575.