Debt solutions for South Africans should be a priority as, according to the National Credit Regulator, almost 50% of active consumers are in arrears on or more of their debts. No doubt, debt is spiralling out of control and, despite the high unemployment rate, South Africans continue to take on more debt. The World Bank announced during the 2014-2015 period that South Africans are among the biggest borrowers in the world. It should sound alarm bells and there is a definite need for better debt solutions for South Africans. That said, it is important for consumers to reduce their spending. Buying clothing and furniture on credit or paying for holidays with credit cards are sure ways to become overindebted.

Is debt review a viable solution for South Africans?

One of the debt solutions is that of debt review. However, with many South Africans going into extreme debt to buy luxury goods and then applying for debt review as a means to pay lower negotiated rates while still keeping their assets, creditors have started to oppose debt review applications. Debt review is often seen as a cheap means to get out of debt trouble, but consumers should keep the legal fees, monthly distribution fees, and the administration fees in mind when they apply for debt review. In addition, such consumers often end up unable to enter into any credit agreements for years because they are under debt review.

It can also affect their ability to rent homes, as realtors perform credit checks and landlords are not always keen to risk renting out homes to people under debt review. Consumers should also keep in mind that one missed or overdue payment can mean immediate cancellation of the debt review process and loss of their assets. If the consumers paid for three or four years under the debt review arrangement and then lose their assets, they may end up in a financial situation from which they cannot recover.

What about voluntary sequestration?

Debt review is thus one of the debt solutions for South Africans, but another, often overlooked, yet highly effective solution is that of voluntary sequestration. Where consumers owe money on their homes, cars, furniture, and other assets and are unable to keep servicing their debts, they can apply to be declared bankrupt. Voluntary sequestration is a legal process and the help of insolvency attorneys is thus needed. The attorneys review the financial situations of their clients and if it is determined that their clients are insolvent, they commence with the voluntary sequestration applications.

Voluntary sequestration is one of the viable debt solutions for South Africans who have sufficient assets to ensure that the sale thereof by means of auction can ensure sufficient benefit to the creditors. It is not a payment holiday or free ticket; it means that assets are sold. However, it does make it possible for bankrupt individuals to get rid of the largest part of their debt, with the remainder payable in a lump sum or down payment by agreement. Once the process is completed and the final distribution account submitted to the Master of the High Court, it is possible to apply for rehabilitation, provided the various requirements are met. Once rehabilitated, consumers can again be directors of companies, hold certain government positions, and enter credit agreements without permission of their trustees. They are debt-free and can start to rebuild their financial estates.

What to do?

Overindebted consumers can speak to our attorneys about voluntary sequestration as one of the debt solutions available to South Africans. They will explain the advantages and disadvantages, requirements, and processes to help the consumers make informed decisions about their financial estates.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. You are advised to consult with us before using/relying on this information. Information is relevant to the date of publishing – February 2018.