Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be complicated and difficult to understand. A question we usually get asked here over at Fresh Start Solutions Darwin is 'what happens to my super if I file 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 involves Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, take into consideration the growing number of members of Self-Managed Super Funds ("SMSFs") over 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 Fresh Start Solutions Darwin is not indicating this post is the complete story, if you have any questions feel free to call us on 1300 818 575. 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 in truth we advise you obtain both legal and financial advice before proceeding with any of the actions indicated in this article.

What is a Disqualified Person?

First and foremost, if you are considering Bankruptcy, you can not be a part of a SMSF. Why? Because if you are facing bankruptcy, you will be grouped 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 both of these members have to also be the individual trustees. The position of trustee sets a lot of legal rules, and if you are in this role I would highly urge you to become aware of them all-- including 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 rather damaging to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

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

So what transpires 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 need 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 offer you a 6 month 'grace period' to get this done before you face penalties. And consider, sometimes the most effective 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 have 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 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 unsure call Fresh Start Solutions Darwin for some free advice on 1300 818 575.

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 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 need to resign and the other member will remove the property and halve the proceeds. They would then have to decide if they wish to remain as a single member SMSF, or if they need to roll it all 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 notice 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 this point facing this problem 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 suggested earlier, a simple 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 getting proper advice is the best 1st step. If you want to discuss your options further, contact us at Fresh Start Solutions Darwin or visit our website: www.freshstartsolutions.com.au/bankruptcy-Darwin.com.au or just call us on 1300 818 575.