Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and confusing. A question we usually get asked here at Fresh Start Solutions Canberra is 'what happens to my super if I declare Bankruptcy'? The answer for most is simple, if your super is in a regulated fund or industry fund like Sunsuper or Host Plus then absolutely 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, consider the evolving number of members of Self-Managed Super Funds ("SMSFs") in recent 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 comes to Bankruptcy?

Remember Fresh Start Solutions Canberra is not indicating this article is the whole story, if you have any questions feel free to get in touch with us on 1300 818 575. No matter if you call us or somebody else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF in fact we recommend you obtain 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 dealing 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 need 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 be knowledgeable about them all-- for example 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 very destructive 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 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 have to consider your over-all structure and see to it that it is meeting the basic conditions, involving having a new trustee that is not having 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 continuously keeping the ATO informed of what is happening. This suggests you ought 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 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.

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 sure call Fresh Start Solutions Canberra for some free advice on 1300 818 575.

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 be their responsibility to oversee the sale and relocation 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 take away the property and halve the proceeds. They would then need to decide if they want to remain as a single member SMSF, or if they intend to roll everything into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets right away 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 already facing this trouble 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 recommended earlier, a basic solution to your SMSF problem 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 finding proper advice is the best first step. If you want to discuss your possibilities further, give us a call at Fresh Start Solutions Canberra or visit our website: www.freshstartsolutions.com.au/bankruptcy-Canberra.com.au or just call us on 1300 818 575.