Bankruptcy, Will I lose my Superannuation?

Bankruptcy Australia can be convoluted and perplexing. A question we normally get asked here over at Fresh Start Solutions Australia is 'what happens to my super if I declare Bankruptcy'? The answer for most is easy, if your super is normally in a regulated fund or industry fund like Sunsuper or Host Plus then absolutely 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 Fresh Start Solutions Australia is not suggesting this article is the complete story, if you have any questions feel free to contact us on 1300 818 575. No matter if you call us or someone else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF indeed we highly recommend you find 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 thinking about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are dealing with bankruptcy, you will be identified 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 the two of these members will need to also be the individual trustees. The job 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-- 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 very harmful to a SMSF and as you can imagine 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 have to be reorganized. This means that you will need to consider your over-all structure and ensure 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 keep 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 continuously 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 must 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 Fresh Start Solutions Australia for some free advice on 1300 818 575.

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 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 need to resign and the other member will clear away the property and halve the proceeds. They would then need to decide if they would like 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 as soon as possible and transfer the liquid assets to the managed fund.

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

A simple solution ...

As I suggested 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 frustrations outlined above. Bankruptcy is never easy, but getting proper advice is the best first step. If you want to discuss your options further, contact us at Fresh Start Solutions Australia or visit our website: www.freshstartsolutions.com.au/bankruptcy-Australia.com.au or just give us a call on 1300 818 575.