Can I Lose My Superannuation In Bankruptcy?
What Does the Law Say About Your Superannuation When You Are Declared Bankrupt?
The thing is, we get a lot of clients asking us if they can lose their life savings that lie in superannuation. This is a good question and a very valid concern to have as this doesn’t just affect you now, but a lot of variables in the latter part of your life. It also impacts the people around you if you are unable to take care of yourself one day.
Fortunately, the Australian Bankruptcy Act does classify Superannuation as a protected asset and you can be rest assured that in most situations, your super will not be taken into consideration when all assets need to be liquidated and distributed among your creditors.
If you’re struggling and don’t know where to start, contact Andrew today for a free consultation.
There Are Exceptions To Be Aware Of.
If you are unsure of this, let us help you there. We can guide you by having a look at your paperwork and what the law says. We can also search the Federal Government Super Fund database where your investments will be listed and or classified accordingly. This will allow us to advise you on the best way to proceed.
These exceptions are set in place to prevent people from moving assets around in an unethical manner (specifically paying it into a superannuation for protection purposes), only to move it out again after the bankruptcy process has concluded. This has to be the case as it protects all parties and ensures fairness.
Despite the protected status of your superannuation, be mindful that there are exceptions. It can lose its protection status if:
- Your superannuation fund is not held in a regulated fund,
- It is not held in an approved deposit fund,
- If it is a government / public sector scheme it will those rules and protections are excluded from the definitions of the Bankruptcy Act.
- If you withdrew any funds before you entered the Bankruptcy process. This means that if you paid off your house with a lump sum, then the house in question will be considered fair game.
- Pensions are different, and they do not enjoy the same level of protections as superannuation. Pensions are seen as an income which changes the definition of its application in a Bankruptcy process. There are scales that determine how much of the pension income can be considered as an asset to during a Bankruptcy process.
What Is the Best Course Of Action?
Truth be told, this is something that the appointed Trustee, partners like us, or your financial advisor can best advise on. We will give you all your options by laying out what the law says about bankruptcy and superannuation and how you are entitled to certain protections.
Most of our clients stay clear of their superannuation altogether so that no party can lay their hands on it as additional contributions or lump sum withdrawals immediately exposing you to potential losses.
It might seem to be a good idea to draw on your superannuation as opposed to selling your car, home or restructuring debt. We do however always caution clients about this as the consequences in the long term are not always positive.
In the end, it is best to raise as much capital from sources that do not touch your life savings and produce a better chance of getting out of this in a stronger financial position that you would have been when raiding your life savings.
The one thing that an appointed trustee might do is to freeze your superannuation whereby continued contributions to the fund are halted. This can be a good thing due to the fact that your monthly expenses can be channelled towards the elevation of the debt burden the trustee needs to remedy.
The only downside of this is that your savings will grow much slower and there might be some charges and penalties that affect your overall return. It might sound severe, but at least you are not losing all of your savings which makes it a good alternative.
As a Trustee in Bankruptcy, Ross Thomson is often required to think outside the box. As well as creative thinking, Ross brings compassion to the table.
For Ross, it’s important to see the people behind the financial problem –not just numbers.
Ross recently helped a bankrupt client who lives in a retirement village with her seriously ill husband.
The unit she & her husband live in is not owned by them, but subject to a 20-year lease.
The money to be repaid by the management was due only at sale, when the client finally left the retirement village.
Sale of the unit was likely to take several years &, if he did sell the couple’s unit, Ross realised he would be effectively evicting them from their home, without resources or family to help them.
Ross decided to contact the retirement village management & put a proposal to them that they prepay some of the moneys they would otherwise pay the client.
The village management considered the proposal & have agreed to prepay some of the moneys otherwise due.
The client is relieved that she will not be evicted & can now concentrate on helping her husband through his health issues.
The moneys paid represented about 75% of what would have been available to creditors if they waited two years.
It is a win for the client and for the creditors.
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Andrew and his team do an excellent job of helping their clients with bankruptcy advice and it is a pleasure to work with him.
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