Requirements for Rehabilitation after Bankruptcy in South Africa

 Rehabilitation after bankruptcy in South Africa is automatic after a period of ten years has lapsed. However, it is possible to be financially rehabilitated sooner if the insolvent party submits an application to this effect to the High Court. In essence, rehabilitation after bankruptcy in South Africa is a legal process whereby the insolvent party is relieved from the status of being insolvent or bankrupt and the repercussions of such a status. The High Court issues an order to return the applicant’s legal status to what it was before being declared insolvent.

As such, the applicant regains their creditworthiness and control over their financial estate. It is recommended to apply for rehabilitation after bankruptcy in South Africa as soon as all requirements for this have been met. While under sequestration, the party cannot hold the position of a director or certain positions in Government or of financial responsibility, cannot apply for a liquor licence, and may not enter into credit agreements without disclosing their sequestrated status and without permission from the court-appointed trustee. If no application is made for rehabilitation after bankruptcy in South Africa, the person will have to wait for a period of ten years before regaining their creditworthiness. This can seriously affect their ability to apply for a home loan, vehicle finance, or certain career positions. Financial rehabilitation occurs when the insolvent party has paid off all their debt and has applied for rehabilitation. In effect, it ends the sequestration process.

Rehabilitation after bankruptcy in South Africa is thus a declaration that the insolvent party is no longer incapable of paying debt and can manage their financial affairs. This is important to understand, since sequestration basically entails the surrendering of the insolvent party’s estate to the court who appoints a curator or trustee to manage that financial estate and see to it that the creditors receive their benefits. With rehabilitation, all debts against the surrendered estate are written off. It is thus the final step in removing the bad credit record. The status of “sequestrated” is removed from the credit bureaux and replaced with “rehabilitated”. This status remains for a period of five years, whereafter it is automatically removed. It is thus essential for a person to commence with the rehabilitation process as soon as it is legally possible, in order to clear their credit record.

Qualifying for Rehabilitation After Bankruptcy in South Africa

 The general timeframe in which insolvent parties apply for rehabilitation is four years after the sequestration date and 12 months after the first distribution account has been confirmed. The applicant must be able to prove that they are financially capable of managing their estate and to provide for themselves. Where the applicant has been previously sequestrated, the application can only be brought after a period of four years has lapsed since the sequestration date, and a period of three years has lapsed since the first liquidation account has been confirmed.

If an applicant has been found guilty of a criminal offense in terms of their insolvent estate, they can only submit an application for rehabilitation after bankruptcy in South Africa after a period of five years has lapsed since the date of the criminal judgment. A person can apply or rehabilitation after a period of 12 months has lapsed since confirmation of the trustee’s first liquidation account, if the Master of the High Court recommends rehabilitation. This is only allowed where the applicant can prove that their rehabilitation is in the best interest of South Africa, such as being to the benefit of previously disadvantaged groups.

The insolvent party can, at any time after the sequestration, approach the trustee with a proposal to the creditors wherein the insolvent party undertakes to pay 50 cents in the rand to all the creditors. The Master of the High Court must issue a certificate to the effect that reflects the security for payment of the amount. The proposal must include a tender for payment of all the administrative costs related to the sequestration. Where the assets in the insolvent party’s estate realise sufficient funds to ensure full payment of the debt to the creditors, the party can immediately apply for rehabilitation after sequestration in South Africa.

We recommend speaking to our insolvency lawyers regarding the requirements for rehabilitation.

Disclaimer: Information is relevant to the date of publishing and is not intended as any form of legal advice. Please call on our attorneys for legal guidance rather than relying on the information herein to make decisions – November 2017.