How Bankruptcy Works in South Africa

It is important to understand how bankruptcy works, since it will affect at least the next four years of your life. As such, we recommend viewing the various sections on sequestration on our website, and to consult with our attorneys regarding questions you might have. We briefly explain how bankruptcy works for individuals in South Africa, in order to help you make an informed decision regarding your debt situation.

The first step is to determine whether you qualify for sequestration. It may sound strange, but you may not have sufficient assets to get approval for voluntary sequestration. The court will only allow you to sequestrate if it will be to sufficient benefit of the secured and unsecured creditors. As such, our attorneys will review your finances to determine whether your liabilities do, indeed, far exceed your assets. If so, then you qualify in terms of the amount of debt. They then look at whether you have enough assets to ensure that the sale thereof on auction by the trustee will ensure enough benefits for the creditors. Note that you can also apply for bankruptcy if you are under debt review.

The attorneys will explain in detail how bankruptcy works and what the effects will be on your financial status. While you will not be able to act as a director of a company while sequestrated, you will be able to get rid of up to 80% of your debt within a few months, and the remainder in cash or within 18 to 24 months, if you are unable to pay off the 20% in cash immediately.

Following the assessment, the attorneys will start the application process. They will publish an advert to this effect in local newspapers and the Government Gazette. Once the notification is published, creditors cannot take any further legal action against you. Your movable and immovable assets are thus safe for the time being.

They will draft a debtor’s affairs statement, which lists your debts, and you will sign it before a Commissioner of Oaths, after which the document will be submitted to the Master of the High Court. The attorneys will send a registered letter to each of the creditors notifying them of the application. You will receive a copy of the letter, which you can show to creditors who still attempt to harass you. The attorneys also notify SARS about the application.

The attorneys then draft a founding affidavit, which provides the details regarding your financial affairs, and the circumstances which led to the situation, and this will also be signed by you. An advocate will represent you in the High Court, and you will thus not have to appear in court.

Once the application for sequestration is approved, the court appoints a curator who will contact you to make arrangements regarding the selling of your assets. Your assets will be sold on auction, and the benefits distributed to the creditors. You will pay off the remainder, and will then be debt free, but still under sequestration until rehabilitation has taken place.

No debt from before the sequestration is then applicable to you, and as such, you will be in a position to regain your financial status. We recommend making an appointment with our attorneys for more information on how bankruptcy works, and to get answers on specific questions.

Disclaimer – Information provided in this article is for general information purposes only and not intended as legal advice. We recommend seeking legal guidance for all matters related to insolvency and to speak to our attorneys before relying on the accuracy of the information provided in this article to make decisions affecting your financial status.