Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be convoluted and perplexing. A question we often get asked here over at Fresh Start Solutions Gold Coast is 'what happens to my super if I declare Bankruptcy'? The answer for most is simple, 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, take into account the expanding number of members of Self-Managed Super Funds ("SMSFs") in recent 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 comes to Bankruptcy?

Remember Fresh Start Solutions Gold Coast is not implying this short article is the complete story, if you have any questions feel free to contact us on 1300 818 575. Whether you call us or someone else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF in fact we recommend 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 thinking about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are taking on bankruptcy, you will be labeled as a 'disqualified person'. And a disqualified individual cannot operate as an Individual Trustee. This poses a problem due to the fact that usually most of the SMSFs are just 2 people, which means each of these members have to also be the individual trustees. The duty of trustee presents a lot of legal rules, and if you are in this role I would highly encourage you to end up being 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 destructive to a SMSF and as you can assume 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 comes about 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 extensive structure and ensure that it is meeting the basic conditions, including things like having a new trustee that is not dealing with 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 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 frequently 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 have 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.

Through 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 Gold 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 have to decide if they would like to remain as a single member SMSF, or if they would like to roll it all into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets right away and transfer the liquid assets to the managed fund.

From that 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 actually facing this concern 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 proposed 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 1st step. If you want to discuss your options further, give us a call at Fresh Start Solutions Gold Coast or visit our website: www.freshstartsolutions.com.au/bankruptcy-GoldCoast.com.au or just give us a call on 1300 818 575.