Professional debt solutions in South Africa range from administration, debt consolidation, and debt review to voluntary sequestration. For the purpose of this article, we will look at voluntary sequestration as one of the professional debt solutions available in South Africa.

The high inflation rate in the country, coupled with high fuel prices and an increase in food prices have driven many South Africans further into debt. Voluntary sequestration is one of the professional debt solutions in South Africa available to people who are bankrupt and thus unable to pay their debt. To be declared bankrupt in South Africa, a person must apply to court for voluntary sequestration. It is a legal process and as such, the applicant requires the assistance of an attorney.

The court will only approve the application if the applicant can prove insolvency. To do so, the applicant must have more debt than assets and must be unable to pay the debts. In addition, the applicant must have sufficient assets to ensure that the sale thereof, overseen by a court appointed curator, will provide for enough benefit to the creditors. The minimum benefit required is at least 20 cents out of the rand for each of the creditors. The sale of assets should also be sufficient to realise enough funds to pay for the sequestration process, legal fees, and curator fees.

In light of the above, one might wonder why voluntary sequestration is one of the professional debt solutions in South Africa, especially since the applicant loses their assets. The truth is that, unlike with administration or debt review, the applicant can get rid of the largest part of their debt in a short period. The remainder is payable over a period of 18 to 24 months. With debt review, the debtor can remain in debt for years and there is always a risk that a creditor can find a loophole to cancel the debt review. If the debtor misses one payment or pay late, the creditors have the right to cancel the debt review and demand payment in full.

The above being said, if the debt is less than a R100 000, the cost of voluntary sequestration should be considered as well. In this instance, debt review may be one of the most suitable professional debt solutions. However, when the debt is excessive and the debtor will stay in debt for years when making use of one of the other professional debt solutions such as debt review, voluntary sequestration is the better option.

It is, however, important to understand that the debtor will lose their immovable property in the process. It is possible to negotiate for the furniture to be bought back from the surrendered estate at a low price with no interest. The furniture is written up, but not removed from the debtor’s house. The debtor’s salary, pension fund, and tools of trade are also excluded from the surrendered estate. The best route to follow depends on the debtor’s specific situation.

We recommend speaking to our attorneys about voluntary sequestration, the requirements, and the rehabilitation process to determine if it is the best professional debt solution for your situation.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing – May 2018.