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.