Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and perplexing. A question we often get asked here over at Fresh Start Solutions Melbourne is 'what happens to my super if I file for Bankruptcy'? The reply for most is simple, if your super is normally in a regulated fund or industry fund like Sunsuper or Host Plus then absolutely 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, take into consideration the expanding number of members of Self-Managed Super Funds ("SMSFs") lately; 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 concerns Bankruptcy?

Remember Fresh Start Solutions Melbourne is not indicating this short article is the complete story, if you have any questions feel free to get in touch with 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 suggest you look 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 coping with bankruptcy, you will be grouped 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 must also be the individual trustees. The position of trustee poses a lot of legal rules, and if you are in this role I would highly encourage you to end up being 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 very destructive 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 takes place 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 have to consider your over-all 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 supply 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 frequently keeping the ATO informed of what is happening. This means you ought 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 Melbourne for some free advice on 1300 818 575.

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 be their responsibility to oversee the sale and transfer 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 have to decide if they wish 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 transfer the liquid assets to the managed fund.

From that you can notice how when it comes to Bankruptcy, even when one single member is dealing with issues, it can affect the very existence of an SMSF. If you are right now facing this matter yourself, or with a partner in a SMSF, please seek financial advice to make sure you are fulfilling the ATO requirements.

A simple solution ...

As I suggested earlier, a simple solution to your SMSF situation is to put your super back into a normal regulated managed fund before bankruptcy and save yourself all the frustrations outlined above. Bankruptcy is never easy, but receiving proper advice is the best initial step. If you want to discuss your options further, contact us at Fresh Start Solutions Melbourne or visit our website: www.freshstartsolutions.com.au/bankruptcy-Melbourne.com.au or just give us a call on 1300 818 575.