Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and difficult to understand. A question we typically get asked here at Bankruptcy Advice Australia is 'what happens to my super if I file 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 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 developing number of members of Self-Managed Super Funds ("SMSFs") in the last few years; the ATO tells us it has grown Australia-wide from 758,589 in 2009 to 1,011,689 in 2014. So what happens to these Superfunds when it comes down to Bankruptcy?

Remember Bankruptcy Advice Australia is not suggesting this short article is the complete story, if you have any questions feel free to get in touch with us on 1300 879 867. Regardless 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 in fact we strongly recommend you ask 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 thinking about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are facing bankruptcy, you will be labeled as a 'disqualified person'. And a disqualified individual cannot operate as an Individual Trustee. This poses a problem since 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 poses a lot of legal rules, and if you are in this role I would highly recommend you to get 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 rather destructive to a SMSF and as you can imagine 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 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 have to consider your whole structure and ensure that it is meeting the basic conditions, involving having a new trustee that is not encountering issues with Bankruptcy. The Australian Tax office will provide you a 6 month 'grace period' to get this done before you face penalties. And bear 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 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 need to inform the ATO using the form NAT 3036 (Found on the ATO website) and they must 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 Advice Australia for some free advice on 1300 879 867.

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 become 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 have to resign and the other member will remove the property and halve the proceeds. They would then need to decide if they choose to remain as a single member SMSF, or if they would like to roll everything into a managed fund. If both members are entering bankruptcy, then they would definitely need to sell all assets at once and move the liquid assets to the managed fund.

From this you can see 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 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 straightforward 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 receiving proper advice is the best 1st step. If you want to discuss your possibilities further, contact us at Bankruptcy Advice Australia or visit our website: www.bankruptcy-advice.com.aau/Australia.com.au or just call us on 1300 879 867.

Bankruptcy in Australia - Will I lose my house if I go bankrupt?

Bankruptcy Australia is a difficult to understand process, but I know from meeting with thousands facing the likelihood of bankruptcy over the years, that pretty much nothing concerns people more than the thought of losing the family home. Almost everyone is emotionally connected to their home - it's where the kids have grown up, it's where you appreciate life on a day to day basis.

Will you lose your home if you go bankrupt? The response is a resounding maybe. (not very helpful, I know) People generally presume it's an inevitable consequence and a part of Bankruptcy, and therefore push themselves to the brink of insanity to not lose the family home. But when it comes to the whole process of Bankruptcy, a key advantage of Debt Agreements and Personal Insolvency Agreements is you can keep your house. The reason is simple: you've accepted to pay back the debt you are in.

So how is it possible to keep my Australia house, you ask? It's easier if I explain the basic principle behind the Bankruptcy process as administered by the trustee, then you'll have a clearer image.

The job of the bankruptcy trustee is to firstly follow the regulation of the bankruptcy act 1966 (it's a very plain read about 600 pages if you are serious).

Within that regulatory framework, the trustee is to help recuperate monies owed to your creditors, that is carried out in a bunch of distinct ways but it mainly comes down to income and assets. The trustees role is to collect payments over and above your income threshold. The further role is to sell any assets that can contribute to fixing your debts.

What this seems like is that yes the trustee will sell your house right? Not always. The only reason the trustee will sell any asset including your house is to get money to pay back your debts. If there is no equity on your property then it's pointless to sell your home. This is happening much more since the GFC as house prices in many regions have been heading south so what you paid 4 years ago may not automatically reflect the price today.

A quick word of advice here if you have a house in Australia and are looking at Bankruptcy: get a qualified professional to help you through this process, there are a number of variables in these scenarios that have to be considered.

You might wonder, why would the bank want bankrupt clients? wouldn't they need to sell your house and not take the risk? The bank that has generously lent you the money for your house is making good money every month in interest out of you, month in month out, as long as you keep up to date with your repayments then the bank wants you in there at all costs. Essentially however it's not the bank's call if the trustee decides that there is loads of equity in your house the trustee will force you and the bank to sell the house.

When you file for bankruptcy you are asked to mark the value of your house and the level you owe on the house. A tip if you are attempting to work out the value of your house: use a registered valuer as this will offer you peace of mind, don't use your neighbours' gut feel recommendations or a real estate agents advice to get to this figure. When you get a valuer out to your house, ensure that you tell the valuer to value the property for a quick sale, see to it you mow the lawn and don't leave the kitchen in a mess also.

Valuers used to give two valuations: one for a quick sale and one for a well marketed non time sensitive sale. These days that's not the case, but if you meet them and let them know you need to sell the house in the next 30 days you may control the result. The idea is that you want a sensible sell now figure.

There are two main reasons this valuation technique is critical to you: one you will have peace of mind ascertaining the market value of your house, and after that you can easily establish your equity position. The second thing is, your property may be worth much more than you thought. Get some tips before doing this. The number of times I've met clients that have sold their family home of 20 years only to find out I could of helped them keep it; unfortunately this happens all too often

When it comes to Bankruptcy and houses, another big consideration is ownership, in most cases houses are purchased in joint names. In other words a couple may be a house 50/50 using both incomes to make the payments. If one party declares bankruptcy and the other party doesn't, the equity is only factored on the 50 % of the property.

When it concerns Bankruptcy, this is just one of potentially hundreds of scenarios that are possible when it relates to the family home. Bear in mind the non-bankrupt party can buy the bankrupt's part of the house in bankruptcy also. I should repeat this but get some help on this area of Bankruptcy because it is very tricky and every case is different.

If you would like to learn more about what to do, where to turn and what questions to ask about Bankruptcy, then feel free to call Bankruptcy Advice Australia on 1300 879 867, or visit our website: www.bankruptcy-advice.com.au/