Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and confusing. A question we normally get asked here at Bankruptcy Experts Darwin is 'what happens to my super if I file for Bankruptcy'? The reply for most is easy, if your super is usually 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, think about the growing number of members of Self-Managed Super Funds ("SMSFs") lately; 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 involves Bankruptcy?

Remember Bankruptcy Experts Darwin is not suggesting this post is the whole story, if you have any questions feel free to get in touch with us on 1300 795 575. No matter if you call us or another person it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF in truth we highly recommend you get both legal and financial advice before proceeding with any of the actions proposed 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 classified 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 each of these members must also be the individual trustees. The duty of trustee causes a lot of legal rules, and if you are in this role I would highly recommend you to become knowledgeable about them all-- for example 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 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 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 complete structure and make certain it is meeting the basic conditions, involving having a new trustee that is not having issues with Bankruptcy. The Australian Tax office will give you a 6 month 'grace period' to get this done before you face penalties. And keep in mind, sometimes the 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 constantly keeping the ATO informed of what is happening. This indicates 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 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 not exactly sure call Bankruptcy Experts Darwin 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 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 have to resign and the other member will clear 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 need to roll it all into a managed fund. If both members are entering bankruptcy, then they will need to sell all assets at once 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 running into issues, it can affect the very existence of an SMSF. If you are already facing this problem 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 situation 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 initial step. If you want to discuss your possibilities further, contact us at Bankruptcy Experts Darwin or visit our website: www.bankruptcyexpertsDarwin.com.au or just call us on 1300 795 575.