Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and perplexing. A question we usually get asked here at Fresh Start Solutions Sunshine Coast is 'what happens to my super if I apply for Bankruptcy'? The answer for most is simple, if your super is usually in a regulated fund or industry fund like Sunsuper or Host Plus then absolutely 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, think about the growing 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 to Bankruptcy?

Remember Fresh Start Solutions Sunshine Coast is not implying this article is the complete story, if you have any questions feel free to consult with us on 1300 818 575. 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 in truth we highly recommend you ask for 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 considering Bankruptcy, you can not be a part of a SMSF. Why? Because if you are being confronted by bankruptcy, you will be identified as a 'disqualified person'. And a disqualified person cannot operate as an Individual Trustee. This poses a problem because usually most of the SMSFs are just 2 people, which means the two of these members will need to also be the individual trustees. The duty of trustee poses a lot of legal rules, and if you are in this role I would highly recommend you to become 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 harmful 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 develops 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 want to consider your whole structure and ensure that it is meeting the basic conditions, involving having a new trustee that is not having issues with Bankruptcy. The Australian Tax office will provide 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 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 have 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 uncertain call Fresh Start Solutions Sunshine Coast 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 become their obligation to oversee the sale and relocation 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 need to decide if they want 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 will need to sell all assets promptly and move 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 issue yourself, or with a partner in a SMSF, please seek financial advice to make certain you are satisfying the ATO requirements.

A simple solution ...

As I recommended earlier, a straightforward solution to your SMSF issue 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 initial step. If you want to discuss your options further, call us at Fresh Start Solutions Sunshine Coast or visit our website: www.freshstartsolutions.com.au/bankruptcy-SunshineCoast.com.au or just call us on 1300 818 575.