Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be complicated and difficult to understand. A question we commonly get asked here over at Bankruptcy Experts Gold Coast is 'what happens to my super if I declare Bankruptcy'? The answer 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 down to Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, think about the growing number of members of Self-Managed Super Funds ("SMSFs") over 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 involves Bankruptcy?

Remember Bankruptcy Experts Gold Coast is not indicating this post is the complete story, if you have any questions feel free to call us on 1300 795 575. Whether you call us or another person it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF indeed we highly recommend you obtain both legal and financial advice before proceeding with any of the actions recommended 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 person cannot operate as an Individual Trustee. This poses a problem because usually most of the SMSFs are just 2 people, which means both of these members need to also be the individual trustees. The role of trustee poses a lot of legal rules, and if you are in this role I would highly recommend you to get knowledgeable about them all-- for example 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 rather detrimental to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

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

So what develops 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 want to consider your overall structure and see to it that 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 supply you a 6 month 'grace period' to get this done before you face penalties. And keep in mind, sometimes the absolute 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 constantly keeping the ATO informed of what is happening. This means you will 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 not exactly sure call Bankruptcy Experts Gold Coast 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 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 have to resign and the other member will clear away 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 need to roll it all into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets immediately and move the liquid assets to the managed fund.

From this 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 currently facing this trouble 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 problem 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 getting proper advice is the best 1st step. If you want to discuss your possibilities further, give us a call at Bankruptcy Experts Gold Coast or visit our website: www.bankruptcyexpertsGoldCoast.com.au or just call us on 1300 795 575.