Misconceptions about debt solutions in South Africa keep many consumers in tremendous debt. For one, if a debtor signs admission of debt and an agreement to pay off the debt with a debt collecting attorney, that debtor can stay in this dire financial situation for an exceptionally long time.

The same holds true for debt review. The process is not a payment holiday. Yet, many debtors stop making payments to the creditors before the process has been completed. If the debt-review application is opposed and not approved, such debtors are then already three months behind in payment. This makes it possible for creditors to take immediate legal action and foreclose on assets with the purpose of selling those assets on auction, sometimes at very low prices. The debtors are then still liable for payment of the balances, but they no longer have their assets.

Debt review should be sought if the debt is not so substantial that it would take more than five years to pay off. If a debtor owes, say R500 000, on a fixed property in South Africa, it can take many years under debt review before it is paid. Voluntary sequestration is then one of the better solutions. No doubt, voluntary sequestration is not a get-out-of-debt-for-free ticket in South Africa. The debtor does lose some assets. If there is fixed property in the insolvent estate, it does form part of the estate. The debtor, however, has the opportunity to get rid of up to 80% of their debt in a relatively short period and can be completely debt-free within 18 to 24 months. The debtor can then apply for rehabilitation as soon as the requirements are met.

Voluntary sequestration is a legal process in South Africa. Many people shy away from it as one of the solutions, because they mistakenly think that they must appear in court. Though the court can, at its discretion, require an applicant to testify, but in most instances, the insolvency lawyers represent the applicant in court. The debtor does not necessarily lose their furniture, as the lawyers negotiate with the trustee to have it written up, but not removed from the debtor’s home. The furniture is then bought from the insolvent estate at the low auction value. Likewise, the debtor does not lose their pension, tools of trade, or their children’s assets. Personal-injury claims do not form part of the sequestration process.

It is best to speak to experienced insolvency lawyers regarding sequestration as one of the debt solutions in South Africa than to blindly sign restructuring of debt agreements.

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 – October 2018.