Bankruptcy, Will I lose my Superannuation?

Bankruptcy Australia can be convoluted and confusing. A question we often get asked here over at Bankruptcy Advice Canberra is 'what happens to my super if I apply for Bankruptcy'? The solution for most is straightforward, if your super is in a regulated fund or industry fund like Sunsuper or Host Plus then very little 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") in the last few years; 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 comes to Bankruptcy?

Remember Bankruptcy Advice Canberra is not implying this post is the complete story, if you have any questions feel free to contact us on 1300 879 867. 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 highly recommend you find 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 considering Bankruptcy, you can not be a part of a SMSF. Why? Because if you are dealing with bankruptcy, you will be grouped as a 'disqualified person'. And a disqualified individual 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 will need to also be the individual trustees. The duty of trustee poses a lot of legal rules, and if you are in this role I would highly urge you to become 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 detrimental to a SMSF and as you can assume the process of Bankruptcy for a SMSF is rather convoluted.

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

So what takes place 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 overall structure and make sure it is meeting the basic conditions, including 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 most suitable 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 constantly keeping the ATO informed of what is happening. This means you ought 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 need to inform the ATO using the form NAT 3036 (Found on the ATO website) and they need to also notify ASIC of their resignation.

Through 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 Advice Canberra for some free advice on 1300 879 867.

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 be 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 need to resign and the other member will clear away the property and halve the proceeds. They would then want 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 will need to sell all assets promptly 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 at the moment facing this matter yourself, or with a partner in a SMSF, please seek financial advice to make sure you are fulfilling the ATO requirements.

A simple solution ...

As I recommended 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 headaches outlined above. Bankruptcy is never easy, but receiving proper advice is the best 1st step. If you want to discuss your possibilities further, give us a call at Bankruptcy Advice Canberra or visit our website: www.bankruptcy-advice.com.au/Canberra.com.au or just call us on 1300 879 867.