Bankruptcy, Will I lose my Superannuation?

Bankruptcy Australia can be complicated and difficult to understand. A question we usually get asked here over at Bankruptcy Advice Gold Coast is 'what happens to my super if I declare Bankruptcy'? The answer for most is easy, if your super is probably in a regulated fund or industry fund like Sunsuper or Host Plus then 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 of the increasing number of members of Self-Managed Super Funds ("SMSFs") in 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 comes down to Bankruptcy?

Remember Bankruptcy Advice Gold Coast is not suggesting this post is the whole story, if you have any questions feel free to consult with us on 1300 879 867. 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 in fact we strongly recommend you obtain 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 thinking about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are confronting bankruptcy, you will be categorized as a 'disqualified person'. And a disqualified person cannot operate as an Individual Trustee. This poses a problem since usually most of the SMSFs are just 2 people, which means each of these members will need to also be the individual trustees. The position of trustee sets a lot of legal rules, and if you are in this position I would highly encourage you to end up being 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 quite detrimental to a SMSF and as you can assume the process of Bankruptcy for a SMSF is rather convoluted.

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

So what comes about 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 have to consider your complete structure and make sure 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 supply you a 6 month 'grace period' to get this done before you face penalties. And keep in mind, sometimes the most ideal 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 indicates 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.

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 exactly sure call Bankruptcy Advice Gold Coast for some free advice on 1300 879 867.

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 become their obligation 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 want to decide if they choose to remain as a single member SMSF, or if they want to roll everything into a managed fund. If both members are entering bankruptcy, then they will need to sell all assets at once and move the liquid assets to the managed fund.

From this 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 right now facing this matter 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 simple 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 problems outlined above. Bankruptcy is never easy, but getting proper advice is the best first step. If you want to discuss your possibilities further, give us a call at Bankruptcy Advice Gold Coast or visit our website: www.bankruptcy-advice.com.au/GoldCoast.au or just give us a call on 1300 879 867.