Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and confusing. A question we commonly get asked here at Bankruptcy Experts Townsville is 'what happens to my super if I file for Bankruptcy'? The answer for most is straightforward, if your super is simply 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, look into the developing number of members of Self-Managed Super Funds ("SMSFs") over the last few 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 involves Bankruptcy?

Remember Bankruptcy Experts Townsville is not proposing this post is the whole story, if you have any questions feel free to contact us on 1300 795 575. Regardless if 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 advise you look for both legal and financial advice before proceeding with any of the actions indicated in this article.a

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 taking on bankruptcy, you will be labeled as a 'disqualified person'. And a disqualified individual cannot operate as an Individual Trustee. This poses a problem due to the fact that usually most of the SMSFs are just 2 people, which means each of these members need to also be the individual trustees. The role of trustee causes a lot of legal rules, and if you are in this position I would highly urge you to end up being 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 much time do I have to restructure my SMSF Fund after I'm bankrupt?

So what comes to pass 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 entire structure and make certain it is meeting the basic conditions, including things like having a new trustee that is not suffering from issues with Bankruptcy. The Australian Tax office will offer you a 6 month 'grace period' to get this done before you face penalties. And consider, sometimes the absolute best 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 continuously keeping the ATO informed of what is happening. This suggests you have to let them know that you have a bankruptcy issue with your current trustee, that they are being removed as soon as possible know who the new trustee/director is. The Bankrupt will also have 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 not sure call Bankruptcy Experts Townsville 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 have 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 need to resign and the other member will clear away the property and halve the proceeds. They would then want to decide if they wish to remain as a single member SMSF, or if they would like to roll all of it into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets immediately and transfer 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 right now 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 recommended earlier, a basic solution to your SMSF problem is to put your super back into a normal regulated managed fund before bankruptcy and save yourself all the frustrations outlined above. Bankruptcy is never easy, but getting proper advice is the best initial step. If you want to discuss your options further, call us at Bankruptcy Experts Townsville or visit our website: www.bankruptcyexpertsTownsville.com.au or just call us on 1300 795 575.