Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be complicated and difficult to understand. A question we commonly get asked here at Bankruptcy Experts Alice Springs is 'what happens to my super if I apply 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 nothing at all happens; your super is 100 % safe when it involves Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, take into account the growing number of members of Self-Managed Super Funds ("SMSFs") lately; 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 comes to Bankruptcy?

Remember Bankruptcy Experts Alice Springs is not suggesting this article is the complete 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 indeed we highly recommend you obtain 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 considering Bankruptcy, you can not be a part of a SMSF. Why? Because if you are being confronted by bankruptcy, you will be classified 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 both of these members have to also be the individual trustees. The position of trustee causes a lot of legal rules, and if you are in this position I would highly urge you to become 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 damaging to a SMSF and as you can assume the process of Bankruptcy for a SMSF is rather convoluted.

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

So what happens if one of the members of an SMSF does enter Bankruptcy?

For starters, the SMSF will have to be reorganized. This means that you will need to consider your over-all structure and ensure it is meeting the basic conditions, including having a new trustee that is not experiencing issues with Bankruptcy. The Australian Tax office will provide you a 6 month 'grace period' to get this done before you face penalties. And keep in mind, sometimes the 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 constantly keeping the ATO informed of what is happening. This suggests 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 must also notify ASIC of their resignation.

Over that 6 month period you will need to remove the Bankrupt from the SMSF-- including their property and assets. Remember if you are uncertain call Bankruptcy Experts Alice Springs 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 become 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 take away the property and halve the proceeds. They would then have to decide if they choose 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 definitely need to sell all assets as soon as possible and transfer the liquid assets to the managed fund.

From this you can notice 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 right now facing this matter yourself, or with a partner in a SMSF, please seek financial advice to make sure you are satisfying the ATO requirements.

A simple solution ...

As I suggested earlier, a basic 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 problems outlined above. Bankruptcy is never easy, but receiving proper advice is the best initial step. If you want to discuss your possibilities further, contact us at Bankruptcy Experts Alice Springs or visit our website: www.bankruptcyexpertsAliceSprings.com.au or just give us a call on 1300 795 575.