Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and difficult to understand. A question we normally get asked here at Bankruptcy Experts Brisbane is 'what happens to my super if I file for Bankruptcy'? The solution for most is straightforward, if your super is actually in a regulated fund or industry fund like Sunsuper or Host Plus then absolutely 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, look at the expanding number of members of Self-Managed Super Funds ("SMSFs") in recent years; 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 Brisbane is not implying this short article is the whole story, if you have any questions feel free to get in touch with us on 1300 795 575. Whether or not you call us or somebody else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF actually we strongly 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 taking into account 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 because 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 duty of trustee sets a lot of legal rules, and if you are in this position I would highly encourage 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 destructive 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 to pass if one of the members of an SMSF does enter Bankruptcy?

For starters, the SMSF will need to be reorganized. This means that you will have to consider your whole structure and make sure it is meeting the basic conditions, including things like 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 consider, 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 means 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 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 not sure call Bankruptcy Experts Brisbane 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 need to appoint a new director, and it will then end up being 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 remove the property and halve the proceeds. They would then have to decide if they wish to remain as a single member SMSF, or if they want to roll all of it into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets right away 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 dealing with issues, it can affect the very existence of an SMSF. If you are at this point facing this issue 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 before bankruptcy and save yourself all the headaches outlined above. Bankruptcy is never easy, but getting proper advice is the best initial step. If you want to discuss your possibilities further, give us a call at Bankruptcy Experts Brisbane or visit our website: www.bankruptcyexpertsBrisbane.com.au or just call us on 1300 795 575.