Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and difficult to understand. A question we typically get asked here over at Bankruptcy Experts Mildura is 'what happens to my super if I apply for Bankruptcy'? The answer for most is simple, if your super is simply in a regulated fund or industry fund like Sunsuper or Host Plus then virtually nothing happens; your super is 100 % safe when it comes to Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, look into the evolving 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 Mildura is not proposing this article is the complete story, if you have any questions feel free to contact us on 1300 795 575. Whether you call us or someone else it does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF actually we encourage you seek both legal and financial advice before proceeding with any of the actions recommended in this article.

What is a Disqualified Person?

First and foremost, if you are taking into account Bankruptcy, you can not be a part of a SMSF. Why? Because if you are facing bankruptcy, you will be classified as a 'disqualified person'. And a disqualified individual cannot operate as an Individual Trustee. This poses a problem since usually most of the SMSFs are just 2 people, which means the two of these members must 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 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 very destructive to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

How long 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 need to be reorganized. This means that you will have to consider your overall structure and ensure that it is meeting the basic conditions, including things like having a new trustee that is not having issues with Bankruptcy. The Australian Tax office will supply 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 ought 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 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.

During the course of that 6 month period you will need to remove the Bankrupt from the SMSF-- including their property and assets. Remember if you are not exactly sure call Bankruptcy Experts Mildura 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 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 have to resign and the other member will take away 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 want to roll it all into a managed fund. If both members are entering bankruptcy, then they would definitely need to sell all assets right away and move the liquid assets to the managed fund.

From this you can notice how when it comes to Bankruptcy, even though one single member is running into issues, it can affect the very existence of an SMSF. If you are actually facing this concern yourself, or with a partner in a SMSF, please seek financial advice to make sure you are fulfilling the ATO requirements.

A simple solution ...

As I recommended earlier, a basic 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 getting proper advice is the best initial step. If you want to discuss your options further, give us a call at Bankruptcy Experts Mildura or visit our website: www.bankruptcyexpertsMildura.com.au or just give us a call on 1300 795 575.