Bankruptcy, Will I lose my Superannuation?

Bankruptcy Australia can be convoluted and confusing. A question we commonly get asked here at Bankruptcy Experts Kalgoorlie is 'what happens to my super if I declare Bankruptcy'? The answer for most is easy, if your super is in a regulated fund or industry fund like Sunsuper or Host Plus then absolutely nothing happens; your super is 100 % safe when it involves Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, think about the expanding number of members of Self-Managed Super Funds ("SMSFs") in recent years; the ATO tells us it has expanded Australia-wide from 758,589 in 2009 to 1,011,689 in 2014. So what happens to these Superfunds when it concerns Bankruptcy?

Remember Bankruptcy Experts Kalgoorlie is not suggesting this article is the entire story, if you have any questions feel free to consult with 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 actually we highly recommend you find both legal and financial advice before proceeding with any of the actions suggested 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 categorized 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 the two of these members must also be the individual trustees. The job of trustee poses a lot of legal rules, and if you are in this position I would highly recommend you to get 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 rather harmful to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

How much time do I have so as to restructure my SMSF Fund once I'm bankrupt?

So what takes effect 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 want to consider your complete structure and ensure that it is meeting the basic conditions, involving having a new trustee that is not having issues with Bankruptcy. The Australian Tax office will give 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 frequently keeping the ATO informed of what is happening. This suggests you will need to let them know that you have a bankruptcy concern 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 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 Kalgoorlie for some free advice on 1300 795 575.

What if I have 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 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 need to resign and the other member will clear away the property and halve the proceeds. They would then have to decide if they want to remain as a single member SMSF, or if they intend to roll it all into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets right away and transfer the liquid assets to the managed fund.

From that you can notice how when it comes to Bankruptcy, even if one single member is dealing with issues, it can affect the very existence of an SMSF. If you are actually facing this issue 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 proposed earlier, a straightforward 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 finding proper advice is the best 1st step. If you want to discuss your options further, call us at Bankruptcy Experts Kalgoorlie or visit our website: www.bankruptcyexpertsKalgoorlie.com.au or just call us on 1300 795 575.