Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and difficult to understand. A question we usually get asked here over at Bankruptcy Experts Perth is 'what happens to my super if I file for Bankruptcy'? The reply for most is straightforward, if your super is actually 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, consider the growing number of members of Self-Managed Super Funds ("SMSFs") lately; 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 involves Bankruptcy?

Remember Bankruptcy Experts Perth is not implying this post is the entire story, if you have any questions feel free to call us on 1300 795 575. Whether you call us or someone else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF in fact we advise you find 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 taking into account Bankruptcy, you can not be a part of a SMSF. Why? Because if you are dealing with bankruptcy, you will be grouped 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 each of these members must also be the individual trustees. The position of trustee poses a lot of legal rules, and if you are in this role I would highly encourage you to become 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 quite damaging 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 takes place 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 need to consider your complete structure and make certain it is meeting the basic conditions, including having a new trustee that is not experiencing issues with Bankruptcy. The Australian Tax office will supply 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 frequently keeping the ATO informed of what is happening. This indicates you ought 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 will need to also notify ASIC of their resignation.

Through 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 Perth 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 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 have 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 will need to sell all assets promptly and transfer the liquid assets to the managed fund.

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

A simple solution ...

As I recommended earlier, a simple solution to your SMSF issue is to put your super back into a normal regulated managed fund prior to bankruptcy and save yourself all the frustrations outlined above. Bankruptcy is never easy, but finding proper advice is the best 1st step. If you want to discuss your options further, give us a call at Bankruptcy Experts Perth or visit our website: www.bankruptcyexpertsPerth.com.au or just call us on 1300 795 575.