What happens to my superannuation if I become bankrupt?
As bankruptcy will result in available assets being realised it is important to consider the status of your superannuation balances. Superannuation is not a personal asset and is held on trust for you and governed by superannuation law and for this reason it is not available to your trustee but is also protected by section 116(2)(d) of the Bankruptcy Act 1966.
It is important that you do not withdraw superannuation as a lump sum during bankruptcy as it would become a personal asset and available to your estate. If you entered into pension phase during bankruptcy, then the annual payment would be assessed as part of your income and you may be required to make a contribution to your estate.
Can I have a self-managed super fund during bankruptcy?
Once you become bankrupt you can no longer be trustee of your own super fund, if you are a director of a company that is trustee of your superfund you can no longer act in that role as a bankrupt cannot be a director of a company.
If you have a self-managed superfund you should speak to your financial advisor prior to becoming bankrupt so proper planning can be put in place in order for your superannuation to remain protected.
Does bankruptcy affect any life insurance?
Section 116(2)(d) of the Bankruptcy Act 1966 provides that policies of life insurance held by the bankrupt and/or their spouse or de facto partner are exempt property where the proceeds of such policies are received on or after the date of bankruptcy and become protected money.
This can also extend to property purchased with protected money so it remains unavailable to a bankruptcy trustee to realise. Protection will only be available on or after the date of bankruptcy - not before. If insurance proceeds or superannuation is received before bankruptcy and placed in a bank account or used to purchase real estate it is not afforded the protection of being exempt property and will be available to creditors.
Please do not hesitate to contact our firm for a free, initial confidential consultation to discuss your options available.
Level 1/63 Salamanca Pl, Battery Point, TAS 7004
Registered Liquidator
Registered Trustee in Bankruptcy
Small Business Restructuring Practitioner
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ABN: 27 093 137 305
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