Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be complicated and difficult to understand. A question we often get asked here over at Bankruptcy Experts Geraldton is 'what happens to my super if I file for Bankruptcy'? The reply for most is straightforward, if your super is in a regulated fund or industry fund like Sunsuper or Host Plus then nothing happens; your super is 100 % safe when it involves Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, take into consideration the evolving 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 Geraldton is not implying this short article is the complete 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 does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF in truth we encourage you seek 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 coping with bankruptcy, you will be grouped 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 will need to also be the individual trustees. The job of trustee presents a lot of legal rules, and if you are in this position I would highly encourage you to end up being familiar with 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 damaging to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

How long do I have so as to restructure my SMSF Fund once 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 reorganized. This means that you will need to consider your entire structure and make certain 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 consider, sometimes the most effective 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 means you ought 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 not sure call Bankruptcy Experts Geraldton 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 obligation to oversee the sale and transfer 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 want 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 will need to sell all assets as soon as possible and transfer the liquid assets to the managed fund.

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

A simple solution ...

As I suggested earlier, a basic solution to your SMSF issue 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, call us at Bankruptcy Experts Geraldton or visit our website: www.bankruptcyexpertsGeraldton.com.au or just call us on 1300 795 575.