Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and confusing. A question we often get asked here at Bankruptcy Advice Brisbane is 'what happens to my super if I declare Bankruptcy'? The answer for most is easy, if your super is simply in a regulated fund or industry fund like Sunsuper or Host Plus then virtually nothing happens; your super is 100 % safe when it comes to Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, look at the increasing number of members of Self-Managed Super Funds ("SMSFs") lately; the ATO tells us it has increased 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 Advice Brisbane is not suggesting this post is the complete story, if you have any questions feel free to call us on 1300 879 867. Regardless 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 actually we encourage you seek both legal and financial advice before proceeding with any of the actions proposed in this article.

What is a Disqualified Person?

First and foremost, if you are thinking about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are being confronted by bankruptcy, you will be classified as a 'disqualified person'. And a disqualified person cannot operate as an Individual Trustee. This poses a problem since usually most of the SMSFs are just 2 people, which means the two of these members need to also be the individual trustees. The job of trustee poses a lot of legal rules, and if you are in this role I would highly recommend you to be familiar with them all-- for example 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 rather damaging 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 transpires if one of the members of an SMSF does enter Bankruptcy?

For starters, the SMSF will need to be restructured. This means that you will want to consider your extensive structure and make certain it is meeting the basic conditions, including having a new trustee that is not suffering from 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 most ideal 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 frequently keeping the ATO informed of what is happening. This indicates you need 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 will need to also notify ASIC of their resignation.

During 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 not sure call Bankruptcy Advice Brisbane for some free advice on 1300 879 867.

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 become their obligation to oversee the sale and transfer of assets into a managed fund. If there are two or more members, than the bankrupt member will have to resign and the other member will clear away the property and halve the proceeds. They would then need to decide if they want 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 will need to sell all assets at once and transfer the liquid assets to the managed fund.

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

A simple solution ...

As I proposed 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 finding proper advice is the best 1st step. If you want to discuss your options further, give us a call at Bankruptcy Advice Brisbane or visit our website: www.bankruptcy-advice.com.au/Brisbane.com.au or just call us on 1300 879 867.