VOLUNTARY SEQUESTRATION – DEBT PROBLEMS AND SOLUTIONS IN SOUTH AFRICA
A recent report by TransUnion shows that consumers struggle with debt problems in South Africa. The credit demand remains worrisome, with defaults on secured debts on the increase. This is especially true for home loans and vehicle finance. The high food prices, petrol price hikes, and related economic challenges experienced are among the reasons for debates about debt problems and solutions in South Africa.
South Africans also use their credit cards extensively for daily living costs and not just for big purchases or financial emergencies according to the Old Mutual 2019 Savings and Investment Monitor report. More and more people talk about problems and solutions, such as consolidation loans, vehicle pawning as security for short-term loans, and voluntary sequestration.
When it comes to debt problems and solutions in South Africa, voluntary sequestration is an option for consumers owing large sums of money on their homes, credit cards, personal loans, and vehicles. Though voluntary sequestration is not without its disadvantages, it does provide complete discharge of debts once the insolvent party is rehabilitated. It is also the one of only a few solutions, giving insolvent parties almost immediate protection against further creditor harassment.
To this end, we briefly discuss voluntary sequestration, giving a clear indication of why it is considered one of the viable solutions for people experiencing debt problems in South Africa.
WHAT IS VOLUNTARY SEQUESTRATION?
It is a legal process whereby an insolvent party applies to court to be declared bankrupt. This is done with the help of insolvency attorneys. The applicant’s liabilities must exceed his/her assets and he/she must be unable to pay obligations when due. In addition, the applicant must have sufficient assets to ensure the sale thereof on auction can realise sufficient proceeds to pay the minimum benefit of 20 cents out of the rand to the creditors. The sequestration costs, court application expenses, trustee/curator fees, and attorney fees must also be paid from the proceeds of sale.
The insolvent party’s first step is to submit the required information to the insolvency attorneys to determine if the applicant qualifies for voluntary sequestration. If it is the case, the attorneys publish the notice of intention to sequestrate. From that moment on, the insolvent party may not make any payments to creditors as to avoid benefitting one creditor over the others.
The creditors must communicate with the attorneys instead of the applicant. This provides for immediate reprieve from creditor harassment. In addition, the applicant has a brief period in which no credit payments can be made. The money can thus be used towards the sequestration process or to save up for a rental deposit.
The court sets a date for the hearing and, if the application is approved, the court declares the applicant bankrupt. A court-appointed trustee/curator oversees sale of assets and manages the distribution of proceeds to the relevant parties. The applicant is officially under sequestration and remains such until rehabilitated.
With the process only taking a few months to complete, it is one of the fastest solutions for debt problems in South Africa in so much that up to 80% of the money owed can be paid off within a short period. All garnishee orders on the applicant’s salary are cancelled. The applicant’s pension and any personal injury payments are excluded from the estate. The applicant’s salary is also safe, as is his/her tools of trade.
The applicant can apply for rehabilitation as soon as requirements are met. Once rehabilitated, all obligations to creditors, against the insolvent estate, are discharged. The rehabilitee regains full control over their financial affairs and can enter credit agreements without the written permission of the trustee/curator.
During the period of sequestration, the insolvent party may not hold a director position in a company and may also not hold certain government positions. Once rehabilitated, the sequestration status on the party’s credit record is changed to rehabilitated. This status stays in place for a period of five years.
Though certainly not the first option when considering debt problems and solutions in South Africa, voluntary sequestration does provide a workable outcome for consumers who want to become completely debt-free. Get in touch for legal advice and assistance regarding insolvencies in South Africa.
Disclaimer: This article is for information 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.