Life During Bankruptcy - Your Superannuation
Below is information on what you need to know regarding your Super during bankruptcy and we also give you our tips:
- You can take comfort knowing that funds you have accumulated over time in your approved super fund are protected for your retirement and are not available to your bankrupt estate.
- If you pay money to your super fund prior to bankruptcy, to prevent it from being available for your creditors these monies will not be protected and can be clawed back into your bankruptcy.
- To be protected your superannuation monies must be held in an approved fund and this could be a deposit fund, or a regulated fund, or an exempt public sector scheme.
- Statutory superannuation paid by your employer during bankruptcy is protected. Nothing changes in regard to payment of the super. It continues to be paid by your employer to your super fund.
- During bankruptcy, you continue to receive correspondence from your super fund, as you do now. Nothing changes.
- If you can afford to save from your wages, you can pay savings to your super fund, provided the super laws allow. This could be a deductible or non-deductible contribution.
- If your super fund increases in value, while you are bankrupt, that gain is for the benefit of your super fund and ultimately your retirement.
- Whilst bankrupt you cannot be a trustee or director of the Trustee company for a Self-Managed Super Fund (SMSF). You do however have 6 months to realise the assets of your SMSF and transfer them to an approved Super Fund, for example, an Industry Super Fund.
- Funds you transfer from your SMSF to an approved super fund must directly go from your SMSF to the new fund. At all times, the funds must be held by an approved fund.
- If you have assets of significant value in your SMSF that are not readily realisable, you may need to consider proposing a Part 4 Composition with your creditors. If creditors approve your proposed Composition, you will maintain the protection from your creditors and be returned to being able to be a Trustee or director of the Trustee company for your SMSF.
- If you are at retirement age or legally able to access money from your super fund, it is important that you do not receive lump sums prior to when you become bankrupt, as those monies will not be protected for you. However, lump sums you legally access from your super fund after you have a bankruptcy number are protected, as are assets you can demonstrate you purchased with those monies.
- Persons who are able to legally access their super can become bankrupt and then use a lump sum from their super to save assets that would normally be lost to their bankrupt estate. For example, a caravan can be saved, using a lump sum from super to buy it at valuation from the bankrupt estate.
- If you receive income from your super fund, those funds will be protected for you. If your income is sufficiently high that you will have to pay income contributions, then you may have to pay a small amount of your income to your bankrupt estate. This will only happen if your income exceeds the income threshold amount that is relevant to you. Information on the income threshold amount that would be relevant to you can be accessed in our article, Wages Super and Spending which can be accessed here Unlike lump sum monies, you cannot use the income you receive from your super fund to purchase unprotected assets, like a caravan.
Tip: We recommend that you do not access lump sum monies from your super fund prior to bankruptcy. Monies you receive prior to bankruptcy are not protected.
Tip: Once bankrupt, if you receive a lump sum from your Super Fund, make sure the monies can be identified and that there is a money trail to the assets you purchase with the funds. Reason, those assets will then be protected for you. – Not a bad idea to open a separate ordinary bank account solely for your super lump sum to be paid into if you intend to use the funds to buy assets that are not protected for you during bankruptcy (eg boats, IBD, caravan).
To get further insight into how bankruptcy works, we recommend our article Getting On With Daily Life which can be accessed here