As our South African insolvency lawyers will explain to you, there are advantages and disadvantages to each type of debt solution. When it comes to voluntary sequestrations, it is extremely important that you understand how sequestration can help you and how it will affect your financial status. It is also important to understand the differences between the debt solutions as, this will help you decide which one is right for you. We recommend discussing each, and especially voluntary surrendering of your estate, with our team of South African insolvency lawyers before you make a final decision.

Disadvantages of voluntary sequestration in South Africa

You will be insolvent for a period of four years, unless you can prove that earlier rehabilitation will be in South Africa’s best interest. The latter is a difficult process, best handled by our team of experienced South African insolvency lawyers. During the time of insolvency, you will need permission from the curator if you want to enter credit agreements, such as financing a vehicle. The curator will look at your payment history, and the financial institution may require someone to sign surety for you.

You will not be able to open a cheque account during the insolvency period and will thus be limited to a savings account.

Only once your rehabilitation application has been approved will the status of “sequestrated” be removed from your credit record. It will be replaced by “rehabilitated” and this will stay on your credit record for five years. There are instances in which you can apply for earlier rehabilitation though, best discussed with the top team of insolvency lawyers in South Africa. You will not be able to hold a director position of a company and certain professional memberships and positions will be forbidden until you have been rehabilitated. Also, keep in mind that you will lose your immovable assets and many of the moveable assets that cannot be excluded from the surrendered estate.

Advantages of voluntary sequestration

After having considered the disadvantages, you may wonder why you would consider voluntary surrender your estate at all. As most South African insolvency attorneys will explain, all debts forming part of the surrendered estate are written off. Your salary and pension are safe. This means that there will be no garnishee orders or other attachments to your salary. In addition, you will be debt-free. There will be no further claims against the estate. Even if you pay the remainder of the outstanding amount over a period of 18-24 months, you will not have to pay accrued interest. This means paying off the debt quickly.

It is discreet and your employer is not informed. Our attorneys will handle the court application and you do not have to attend hearings. If the curator agrees, you may negotiate with your bank to have you enter into a lease agreement regarding your vehicle. This is subject to the bank’s approval and all instalments being up to date. You will break free from the debt cycle and can start afresh. Harassment by creditors will be something of the past.

What are the other debt solutions?

You can apply for a debt consolidation loan but, unless the loan is sufficient to pay off most of your debt, you will actually add to the debt burden, instead of reducing it. Debt review is another option, if your debt is more than R50 000, but the amount is manageable; this means you must be able to pay it off within five years. With debt review, you will also not be able to enter into credit agreements and it may take a few years before you are debt-free.

In addition, if you miss one payment, the debt review is cancelled, and you will immediately have to pay the full amounts owed. If your debt is less than R50 000, you can apply to be placed under administration. However, you can end up paying debt for many years to come. Voluntary sequestration makes it possible to get rid of debt faster than with debt review, and it is a suitable option if you have immovable property, unless you have enough money to pay 20-25 cents out of the rand to each creditor.

Call on our team of South African insolvency lawyers to help you determine whether you qualify for voluntary sequestration.

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 – December 2017.