Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and confusing. A question we normally get asked here at Bankruptcy Experts Mackay is 'what happens to my super if I file for Bankruptcy'? The reply for most is straightforward, if your super is probably in a regulated fund or industry fund like Sunsuper or Host Plus then 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, look into 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 down to Bankruptcy?

Remember Bankruptcy Experts Mackay is not proposing this article is the whole story, if you have any questions feel free to contact us on 1300 795 575. Regardless 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 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 thinking about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are facing bankruptcy, you will be categorized 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 have to also be the individual trustees. The position of trustee presents a lot of legal rules, and if you are in this role I would highly encourage you to become knowledgeable about 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 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 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 have to be restructured. This means that you will want to consider your whole structure and see to it that 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 offer you a 6 month 'grace period' to get this done before you face penalties. And keep in mind, 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 constantly keeping the ATO informed of what is happening. This indicates you need 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 must 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 uncertain call Bankruptcy Experts Mackay for some free advice on 1300 795 575.

What if I have a single member fund?

If you are a single member fund, then you will have to appoint a new director, and it will then become 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 have to resign and the other member will remove the property and halve the proceeds. They would then have to decide if they choose to remain as a single member SMSF, or if they intend to roll it all into a managed fund. If both members are entering bankruptcy, then they would 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 running into issues, it can affect the very existence of an SMSF. If you are currently 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 simple 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 frustrations outlined above. Bankruptcy is never easy, but getting proper advice is the best initial step. If you want to discuss your possibilities further, call us at Bankruptcy Experts Mackay or visit our website: www.bankruptcyexpertsMackay.com.au or just give us a call on 1300 795 575.