THREE TYPES OF DEBT RESCUE
Debt rescue can take many forms, of which one is debt review or debt counselling. Sequestration is also a form of debt rescue, as is the selling of some of your assets to pay off debt, with arrangements made with creditors to pay the remainder over a specific period.
The type of debt rescue that is selected affects your credit standing, and the costs associated with each should also be taken into consideration. What many debtors don’t realise is that debt review is not a free process. You will need to pay the lawyer fees and the debt counselling fees, in addition to the monthly fee for maintenance of your debt review account, as well as the distribution company’s fee.
Debt review is an alternative to administration. Your debt can only be placed under administration if the total amount owed is less than R50 000. If not, then debt review is normally suggested as a debt rescue plan.
However, if it will take longer than five years under debt review to pay off the debt, and you do have immovable property, then sequestration might be suggested. With sequestration, your insolvent estate is placed under the control of a curator who is responsible for distributing the proceeds of the auction sale of your assets to the various creditors. You can get rid of up to 80% of your debt in this way, and pay the remainder off in cash or over a period of 18-24 months, if agreed upon, at no additional interest rate. You can then apply for rehabilitation after four years have passed since the provisional sequestration date, although earlier rehabilitation is possible under certain circumstances.
Under sequestration, you can still enter into credit agreements with the written permission of the curator, although it is not recommended. All debt incurred up until the sequestration are discharged when rehabilitated, and creditors cannot bring more legal action against you once the sequestration order is in place.
Under debt review, you are also protected against creditor actions as long as you keep paying the monthly consolidated amount, which is then distributed according to the court order amongst the creditors. Late or non-payment allows the creditors to take legal action against you to demand immediate payment of the outstanding debt and interest.
With debt review, the debt counsellor negotiates for lower interest rates on the debt, although the results are not guaranteed. Service contracts are excluded from the process. Once you have paid all the debt, you receive a debt clearance certificate and can only then enter into credit agreements.
Before considering administration, keep in mind that the administration charges are high and form part of every instalment. With sequestration as a debt rescue option, you will lose your assets, such as immovable property. However, you won’t pay any interest and you can buy your furniture back from the insolvent estate at a low price, if so negotiated by your attorney. You can also make arrangements to keep driving your vehicle, which is best discussed with insolvency law attorneys on how to do such.
The purpose of debt rescue is assisting the debtor to pay off debt and to become rehabilitated. With sequestration and debt review, such is possible within relatively short periods, considering that a home mortgage can stretch over ten to twenty years.
What many consumers don’t understand is that one doesn’t automatically qualify for debt review, administration or sequestration. As for debt review, your ability to pay the monthly instalments to various creditors must be insufficient. You must have a monthly income, because you will pay monthly. You must thus be over-indebted. If you don’t qualify, you will have to try another means to negotiate with your creditors, in order to prevent the loss of your assets. If your application is rejected, you will still have to pay the application fee and the rejection fee for debt review. By this time, your creditors may already have taken judgment against you. The court can allow for you to be placed under administration, provided your debt is less than R50 000.
With sequestration, you also have costs and as such, it is only an option if you have a monthly income and sufficient assets to ensure that the sale thereof will provide sufficient benefit to the creditors. The benefit can be discussed with our attorneys. Depending on the creditor status, a minimum of 10 cents or 20 cents of the rand must be available for benefit to the creditors.
We highly recommend speaking to our insolvency attorneys before embarking on any type of debt rescue path. Our lawyers will review your particular financial situation, and give you legal advice regarding the best route to follow to get rid of your debt to suit your particular circumstances.