Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be involved and difficult to understand. A question we usually get asked here at Fresh Start Solutions Brisbane is 'what happens to my super if I declare Bankruptcy'? The answer for most is easy, 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 to Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, look at the developing 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 comes down to Bankruptcy?

Remember Fresh Start Solutions Brisbane is not proposing this short article is the entire story, if you have any questions feel free to consult with us on 1300 818 575. No matter if you call us or somebody else it doesn't matter, just please don't walk into bankruptcy blind when it comes to your SMSF in truth we highly recommend you ask for 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 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 since usually most of the SMSFs are just 2 people, which means both of these members will need to also be the individual trustees. The role of trustee causes a lot of legal rules, and if you are in this role I would highly urge you to become familiar with them all-- for example 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 want to consider your complete structure and ensure that it is meeting the basic conditions, involving having a new trustee that is not encountering 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 very 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 concern 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 need to also notify ASIC of their resignation.

During 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 Fresh Start Solutions Brisbane 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 end up being 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 need to resign and the other member will clear away the property and halve the proceeds. They would then want to decide if they would like to remain as a single member SMSF, or if they want to roll everything into a managed fund. If both members are entering bankruptcy, then they would definitely need to sell all assets at once and move the liquid assets to the managed fund.

From that you can see how when it comes to Bankruptcy, even though one single member is facing issues, it can affect the very existence of an SMSF. If you are at the moment facing this matter 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 problem is to put your super back into a normal regulated managed fund before bankruptcy and save yourself all the headaches outlined above. Bankruptcy is never easy, but finding proper advice is the best initial step. If you want to discuss your options further, contact us at Fresh Start Solutions Brisbane or visit our website: www.freshstartsolutions.com.au/bankruptcy-Brisbane.com.au or just call us on 1300 818 575.