Case study: Karen

Superannuation in bankruptcy

Karen is a 63-year-old retired teacher from Swan, Western Australia. Karen found it hard to manage their debts after retiring from their full-time job. They became bankrupt in March 2018.

Karen had $659,000 in their regulated super fund. Karen’s car was recently written off in an accident. They did not have insurance to cover the damage. In October 2019 (while still bankrupt), they applied to release a $50,000 lump sum from their super fund. This amount was approved and deposited into their bank account in November 2019.

Karen used some of this money to buy a new car. They used the rest of the money to send their grandchildren to visit family in England.

AFSA received a phone call from a creditor of Karen’s bankrupt estate. The creditor was angry that Karen had bought a new car and paid for an overseas holiday. The creditor demanded the trustee take the car as an asset in the bankrupt estate.

AFSA contacted Karen and discussed the new car purchase and holiday payment with their. Karen told AFSA they paid for them with money from their super fund. AFSA asked them to provide evidence.

Karen was able to provide full evidence of the payment transfers from the regulated superannuation fund to their bank account. Their bank account showed full payment to the car dealer and to the travel agent. It was clear these payments had been made using the superannuation money.

Under the Bankruptcy Act, Karen’s lump sum superannuation withdrawal after bankruptcy is protected from their creditors. Assets purchased with this money are also considered to be protected. This means that those assets remain safe and cannot be taken for the benefit of creditors.

*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action