Bankruptcy, Will I lose my Superannuation?

Bankruptcy Australia can be involved and confusing. A question we often get asked here over at Bankruptcy Australia is 'what happens to my super if I apply for Bankruptcy'? The reply for most is easy, if your super is normally in a regulated fund or industry fund like Sunsuper or Host Plus then virtually nothing 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 account 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 Australia is not indicating this article is the complete story, if you have any questions feel free to contact us on 1300 795 575. No matter if you call us or another person it does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF actually we strongly recommend you obtain both legal and financial advice before proceeding with any of the actions suggested in this article.

 What is a Disqualified Person?

First and foremost, if you are considering Bankruptcy, you can not be a part of a SMSF. Why? Because if you are going up against bankruptcy, you will be classified as a 'disqualified person'. And a disqualified person cannot operate as an Individual Trustee. This poses a problem due to the fact that usually most of the SMSFs are just 2 people, which means both of these members have to also be the individual trustees. The position of trustee sets a lot of legal rules, and if you are in this position I would highly recommend 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 see how an individual bankruptcy can be very damaging 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 happens 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 ensure that it is meeting the basic conditions, including having a new trustee that is not experiencing issues with Bankruptcy. The Australian Tax office will offer you a 6 month 'grace period' to get this done before you face penalties. And keep in mind, sometimes the 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 constantly 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 must also notify ASIC of their resignation.

During 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 Australia for some free advice on 1300 795 575.

 What if I have 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 obligation 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 have to decide if they want to remain as a single member SMSF, or if they need to roll it all into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets immediately and transfer the liquid assets to the managed fund.

From that you can notice 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 already facing this concern 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 basic solution to your SMSF situation 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 first step. If you want to discuss your options further, give us a call at Bankruptcy Australia or visit our website: www.bankruptcy-australia.net.au.au or just give us a call on 1300 795 575.