In September 2017, there were more than 24 million consumers in the country making use of credit. The shocking part is that there are 8 million more credit consumers than people employed in the country. This means that an enormous number of consumers have credit, but not employment. The debt level in the country is something to be concerned about. Many consumers do not consider debt solutions that work. They continue to add to their debt problems with more credit cards and personal loans in their attempts to pay off their other debts.

Less than 5% of consumer debt is attributed to home loans. Credit cards, store accounts, and overdraft facilities make up more than 64% of the debt. It is time to consider debt solutions that work, not debt consolidation loans or fixed-term loans. Such loans have high interest rates and may carry penalties for early settlement. Incurring more debt to pay debt adds to the problem. Unless the consolidation loan is enough to pay off all the debts of the consumer and has an affordable interest rate, it is just another debt added to the consumer’s problems.

In addition, once the consumer does not have the pressure of many accounts to pay and only the consolidation loan, the temptation to again use the credit cards and store cards must be dealt with. Debt review is regarded as one of the debt solutions that work, and it is certainly an option, provided the consumer can pay off the debt within five years. If the consumer has a home loan and opts for debt counselling, the chances of paying off the debt within a few years are slim. The consumer thus stays in debt for an extended period.

Negotiation with creditors for a compromised amount is another one of the debt solutions that work, provided the consumer can service the debt and does not enter into more credit agreements. Voluntary sequestration is one of the best debt solutions that work. It is a legal process whereby the applicant applies to court to be declared bankrupt. If awarded, the court appoints a trustee or curator to oversee the insolvent party’s financial estate. The estate is thus surrendered, and the insolvent party no longer has control over their finances. The insolvent party’s assets are listed and sold at auction. The income from the sale is distributed according to the requirements of the Insolvency Act of South Africa. The creditors must receive a minimum of 20 c out of the rand as benefit, depending on whether the debt is secured or unsecured and whether the insolvent party sequestrates with or without immovable property.

Once the trustee has submitted the final liquidation and distribution account, and the minimum period has passed, they can apply for financial rehabilitation. Specific requirements must be met for rehabilitation. Once rehabilitated, their status changes from “sequestrated” to “rehabilitated”. They can then enter into credit agreements without permission from the trustee and can regain full control over their finances. They are debt-free and no further claims from creditors can be initiated against the estate. Once the sequestration process has started and the provisional order for sequestration has been granted, the creditors cannot initiate any further legal action against the insolvent party. The interest rates are frozen. With sequestration, the pension of the applicant is protected. The applicant’s children’s assets and the applicant’s tools of trade are also protected.

What makes voluntary sequestration one of the debt solutions that really works is that the insolvent party can get rid of up to 80% of their debt in a short period. The remainder is payable in a lump sum or by means of down payment over 18-24 months. No interest can be added to the debt and the person is thus able to completely pay off their debt without incurring other debt to do so. The consumer is not caught up in a debt cycle or an agreement whereby they have to pay additional collection and legal fees for years to come.

When it thus comes to debt solutions that work, voluntary sequestration is one of the best options if the consumer has immovable property or enough assets to ensure that the sale thereof can provide the minimum benefit required for the creditors.

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.