Bottom line: bankruptcy is no picnic

UNFORTUNATELY the current economy has given small businesses a kick in the guts and some business owners are finding it increasingly difficult to repay their debts to creditors. Losing your business can take a big emotional toll, but sometimes wiping the slate clean and starting from scratch can be the best option, both for you and for your family.

Let's be clear: bankruptcy legislation is designed to tidy up the affairs of an individual who (or a business which) cannot continue in its present form. The law is designed to let people who run into legitimate and unforeseeable problems rule off and start again.

When your business is declared bankrupt, a trustee is appointed and will act on your behalf. Your debts will be extinguished and your assets will be seized and sold, with the exception of a limited number of exempted assets.

Your financial records will be investigated, and in certain circumstances this may include personal financial assets that are tied to the business.

When you file for bankruptcy, your status is permanently listed on the National Personal Insolvency Index as public record. Bankruptcy is usually granted for three years, but the three-year period can be extended upwards of five or eight years if you do not comply with the requirements imposed by your trustee. Declaring bankruptcy can affect your credit rating, which may make it difficult to obtain a loan. It may also make you ineligible for certain licences as well as hold you back from company directorships in the future.

Bankruptcy should never be used as an easy way out of a seemingly impossible financial situation. However, I've seen lots of determined people bounce back. So, if you feel there is no other solution, get some good advice and keep your head up.

QUITE a few of the members of my small business association have been talking about starting self-managed super funds. What are your thoughts?

SELF-MANAGED superannuation funds (SMSFs) aren't anything new, but they've been receiving a lot of media attention lately, due to fierce criticism that our major industry funds are too reliant on the volatile sharemarket. SMSFs actually represent well in excess of 20 per cent of Australia's superannuation savings, so there are plenty of people out there who have the same sentiment as your fellow association members.

The key advantage to starting a self-managed super fund is exactly as the name suggests it's managed by you and you control what you invest in. The other major advantage is flexibility, in that if you want to invest in direct shares, direct property or fixed interest, you can. You (and your adviser if you appoint one) decide on the assets and the overall mix, and you have ultimate responsibility for what happens in the fund. There are other perks, too. SMSFs have recently been permitted to borrow to acquire property. This is done via a "security trust", which is a little complicated but can be useful.

Overall, I am an advocate of SMSFs, but only if you have the time, knowledge and capability to manage it. If you don't, there are advisers who can do it for you, and their expertise can be a real investment towards maximising your retirement savings.

Mark Bouris is executive chairman of wealth management company Yellow Brick Road. His advice here is intended as guidance only.

If you have a question for Mark Bouris, email it to Larissa Ham at lham@theage.com.au.

For more expert advice go to www.mysmallbusiness.com.au.