Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and difficult to understand. A question we often get asked here at Bankruptcy Experts Dubbo is 'what happens to my super if I declare Bankruptcy'? The solution 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, think about the growing number of members of Self-Managed Super Funds ("SMSFs") in the last few 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 concerns Bankruptcy?

Remember Bankruptcy Experts Dubbo is not proposing this post is the complete story, if you have any questions feel free to consult with us on 1300 795 575. Whether or not you call us or someone else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF actually we recommend you find 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 thinking about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are facing bankruptcy, you will be identified as a 'disqualified person'. And a disqualified individual 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 will need to also be the individual trustees. The position of trustee presents a lot of legal rules, and if you are in this position I would highly urge 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 damaging to a SMSF and as you can assume the process of Bankruptcy for a SMSF is rather convoluted.

How long 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 reorganized. This means that you will want to consider your overall 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 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 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 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 have 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.

Over 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 Dubbo 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 have to appoint a new director, and it will then end up being 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 want to remain as a single member SMSF, or if they would like to roll everything into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets as soon as possible and move the liquid assets to the managed fund.

From that you can see 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 at the moment facing this concern yourself, or with a partner in a SMSF, please seek financial advice to make certain you are meeting the ATO requirements.

A simple solution ...

As I recommended 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, contact us at Bankruptcy Experts Dubbo or visit our website: www.bankruptcyexpertsDubbo.com.au or just call us on 1300 795 575.