Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and difficult to understand. A question we often get asked here over at Bankruptcy Experts Sydney is 'what happens to my super if I file for 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 virtually 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 into the increasing number of members of Self-Managed Super Funds ("SMSFs") in recent years; the ATO tells us it has increased 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 Sydney 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. No matter if you call us or somebody else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF indeed we suggest you look for both legal and financial advice before proceeding with any of the actions proposed 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 coping with bankruptcy, you will be grouped 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 each of these members will need to also be the individual trustees. The duty of trustee presents a lot of legal rules, and if you are in this position I would highly encourage you to get familiar with 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 very harmful to a SMSF and as you can assume the process of Bankruptcy for a SMSF is rather convoluted.

How much time do I have 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 have to be restructured. This means that you will want to consider your extensive structure and ensure it is meeting the basic conditions, including things like having a new trustee that is not dealing with issues with Bankruptcy. The Australian Tax office will offer you a 6 month 'grace period' to get this done before you face penalties. And bear in mind, sometimes the most effective 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 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 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 unsure call Bankruptcy Experts Sydney 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 be their duty 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 have to decide if they would like to remain as a single member SMSF, or if they would like to roll it all into a managed fund. If both members are entering bankruptcy, then they would definitely need to sell all assets promptly and transfer the liquid assets to the managed fund.

From that you can see 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 currently facing this matter yourself, or with a partner in a SMSF, please seek financial advice to make certain you are satisfying the ATO requirements.

A simple solution ...

As I suggested earlier, a straightforward solution to your SMSF situation 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 receiving proper advice is the best first step. If you want to discuss your options further, give us a call at Bankruptcy Experts Sydney or visit our website: www.bankruptcyexpertsSydney.com.au or just give us a call on 1300 795 575.