Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and perplexing. A question we typically get asked here at Bankruptcy Experts Hobart is 'what happens to my super if I declare Bankruptcy'? The reply for most is straightforward, if your super is in a regulated fund or industry fund like Sunsuper or Host Plus then virtually 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, look at the developing number of members of Self-Managed Super Funds ("SMSFs") over 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 concerns Bankruptcy?

Remember Bankruptcy Experts Hobart is not proposing this short article is the whole story, if you have any questions feel free to call us on 1300 795 575. No matter if you call us or another person it does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF indeed we advise you seek 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 classified as a 'disqualified person'. And a disqualified individual cannot operate as an Individual Trustee. This poses a problem since usually most of the SMSFs are just 2 people, which means the two of these members have 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 urge you to be 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 detrimental to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

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

So what develops if one of the members of an SMSF does enter Bankruptcy?

For starters, the SMSF will have to be reorganized. This means that you will need to consider your whole structure and make certain it is meeting the basic conditions, including having a new trustee that is not experiencing issues with Bankruptcy. The Australian Tax office will offer you a 6 month 'grace period' to get this done before you face penalties. And bear in mind, sometimes the very best 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 means you need to let them know that you have a bankruptcy problem 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 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 Bankruptcy Experts Hobart 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 become their duty 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 wish to remain as a single member SMSF, or if they want to roll all of it into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets as soon as possible and move the liquid assets to the managed fund.

From this you can see how when it comes to Bankruptcy, even if one single member is dealing with issues, it can affect the very existence of an SMSF. If you are at this point facing this trouble 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 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 problems outlined above. Bankruptcy is never easy, but finding proper advice is the best first step. If you want to discuss your options further, contact us at Bankruptcy Experts Hobart or visit our website: www.bankruptcyexpertsHobart.com.au or just call us on 1300 795 575.