Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and perplexing. A question we usually get asked here at Bankruptcy Experts Cairns is 'what happens to my super if I apply for Bankruptcy'? The answer for most is easy, 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 comes down to Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, take into consideration the increasing number of members of Self-Managed Super Funds ("SMSFs") over the last few years; the ATO tells us it has grown 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 Experts Cairns is not proposing this short article is the entire story, if you have any questions feel free to consult with us on 1300 795 575. Whether you call us or somebody else it does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF actually we advise you find 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 coping with bankruptcy, you will be grouped 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 role of trustee causes a lot of legal rules, and if you are in this position I would highly urge you to become knowledgeable about 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 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 comes about 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 complete structure and ensure it is meeting the basic conditions, including things like having a new trustee that is not experiencing issues with Bankruptcy. The Australian Tax office will supply you a 6 month 'grace period' to get this done before you face penalties. And consider, sometimes the most suitable 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 need to let them know that you have a bankruptcy complication 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.

In 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 sure call Bankruptcy Experts Cairns 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 end up being 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 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 definitely 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 when one single member is facing 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 sure you are meeting the ATO requirements.

A simple solution ...

As I proposed earlier, a straightforward solution to your SMSF situation 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 finding proper advice is the best first step. If you want to discuss your possibilities further, give us a call at Bankruptcy Experts Cairns or visit our website: www.bankruptcyexpertsCairns.com.au or just give us a call on 1300 795 575.