Bankruptcy, Will I lose my Superannuation?

Bankruptcy Australia can be complicated and perplexing. A question we often get asked here over at Bankruptcy Advice Sunshine Coast is 'what happens to my super if I apply for Bankruptcy'? The reply for most is straightforward, if your super is usually in a regulated fund or industry fund like Sunsuper or Host Plus then nothing 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 growing 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 comes down to Bankruptcy?

Remember Bankruptcy Advice Sunshine Coast is not proposing this short article is the whole story, if you have any questions feel free to consult with us on 1300 879 867. Whether you call us or someone else it does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF in fact we highly recommend you obtain both legal and financial advice before proceeding with any of the actions proposed ina 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 labeled 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 have to also be the individual trustees. The role of trustee sets a lot of legal rules, and if you are in this position I would highly encourage you to be aware of them all-- including 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 much time do I have to restructure my SMSF Fund after I'm bankrupt?

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

For starters, the SMSF will have to be reorganized. This means that you will want to consider your over-all structure and make certain it is meeting the basic conditions, including having a new trustee that is not experiencing issues with Bankruptcy. The Australian Tax office will provide you a 6 month 'grace period' to get this done before you face penalties. And consider, sometimes the most effective 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 concern 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 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 uncertain call Bankruptcy Advice Sunshine Coast 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 responsibility 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 take away the property and halve the proceeds. They would then need to decide if they wish to remain as a single member SMSF, or if they want to roll it all into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets immediately and move the liquid assets to the managed fund.

From this you can notice how when it comes to Bankruptcy, even if one single member is dealing with 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 meeting the ATO requirements.

A simple solution ...

As I recommended earlier, a straightforward solution to your SMSF issue is to put your super back into a normal regulated managed fund before bankruptcy and save yourself all the frustrations outlined above. Bankruptcy is never easy, but receiving proper advice is the best first step. If you want to discuss your possibilities further, contact us at Bankruptcy Advice Sunshine Coast or visit our website: www.bankruptcy-advice.com.au/SunshineCoast.au or just give us a call on 1300 879 867.