If the bank threatens to foreclose on your property or to repossess your vehicles, it is time to take drastic steps. You must do so before judgments are obtained against you. The question is which option is better for you, debt review or sequestration? There is no straightforward answer, as there is no magical solution to get rid of debt. If you expect a payment holiday with sequestration or debt review, you will be disappointed. The good news is that both options are suitable solutions to get out of debt, but are applicable to different situations.

What is debt review and when is it a good option?

Debt review is a legal process whereby your debt counsellor negotiates with your creditors for lower interest and reduced instalments. A court order is obtained, which puts you under debt review. While under the debt review process, you must pay a consolidated, lower monthly amount to a distribution agency. The agency distributes the money amongst the creditors according to the court order. While paying your monthly instalment, you are protected from creditor harassment and no further legal action can be taken against you.

Once the debt has been settled, your debt counsellor issues a debt clearance certificate and notifies the credit bureaux of the debt settlement. The debt review flag on your credit record is removed and you can once again enter into credit agreements. The option is suitable if you have a monthly income and your debt is substantial, but not to so extensive that you will have to pay for more than five years. You can, during the period, apply to be removed from debt review if you are able to repay your debt at the normal rate. Note that, during the period of debt review, you will not be able to enter into any type of credit agreement. All your accounts, including store accounts, vehicle instalments, bond payments, and any credit payments, other than service contracts, will form part of the debt review process. You will not be able to exclude any accounts except service or lease contracts.

Once paid in full, you will have a clean credit record. A problem often experienced is that, since all accounts have been settled, you have no proof of a good credit history, even though your credit score will look good. One way to counter this is to keep your cellphone contracts and to pay them on time every month. In this way, once you have been released from debt review, you will have at least one credit reference and a good credit score.

What is voluntary sequestration and when is it a good option?

Voluntary sequestration is a legal process whereby you apply to court to be declared insolvent. Once the process commences, you may not make any payments to creditors. The court will appoint a curator over your estate who will manage the sale of assets and distribution of benefits of at least 20 c out of the rand to the creditors. Once the sequestration process is completed, you will be rid of up to 80% of your debt in a short period. The remainder can be paid in cash or at an affordable low instalment over 18 to 24 months. As soon as the curator or trustee’s final distribution account is submitted to the Master, 12 months must pass and then you can apply for rehabilitation.

While under sequestration, you cannot act as a director of a company and may not hold certain positions. You need the written permission of the curator to enter into credit agreements, though it is not recommended. Depending on whether you sequestrate with or without property, you will not necessarily lose your movable assets. Once sequestrated, you are completely debt-free and can rebuild your financial estate. There can be no further claims against the estate. Once rehabilitated, you can be a director, hold certain positions, and enter into credit agreements. Sequestration is a suitable debt solution if you have immovable property on which you still owe a large amount, are unable to service your debts, and have far more liabilities than income and assets. It is also suitable if you do not want to pay off debt for years, as the case can be with debt review.

Call on our team of sequestration attorneys to help you determine which option is best for you and to explain the process of sequestration.

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 publication – January 2018.