Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and confusing. A question we often get asked here over at Bankruptcy Experts Lismore is 'what happens to my super if I declare Bankruptcy'? The solution for most is easy, if your super is simply in a regulated fund or industry fund like Sunsuper or Host Plus then very little 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 consideration the expanding number of members of Self-Managed Super Funds ("SMSFs") lately; the ATO tells us it has expanded 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 Experts Lismore is not implying this post is the complete story, if you have any questions feel free to call us on 1300 795 575. No matter if you call us or someone else it does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF actually we encourage you look for both legal and financial advice before proceeding with any of the actions indicated 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 being confronted by bankruptcy, you will be labeled 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 position I would highly urge you to end up being aware of 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 quite detrimental to a SMSF and as you can assume the process of Bankruptcy for a SMSF is rather convoluted.

How much time do I have so as to restructure my SMSF Fund after I'm bankrupt?

So what transpires 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 entire structure and make certain it is meeting the basic conditions, involving 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 very best 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 suggests you have to let them know that you have a bankruptcy issue 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.

In 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 Experts Lismore for some free advice on 1300 795 575.

What if I use 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 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 remove the property and halve the proceeds. They would then have to decide if they would like 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 definitely need to sell all assets as soon as possible and move the liquid assets to the managed fund.

From that you can notice how when it comes to Bankruptcy, even though one single member is facing issues, it can affect the very existence of an SMSF. If you are at this point 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 simple solution to your SMSF situation 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 finding proper advice is the best first step. If you want to discuss your possibilities further, give us a call at Bankruptcy Experts Lismore or visit our website: www.bankruptcyexpertsLismore.com.au or just give us a call on 1300 795 575.