SEQUESTRATION MEANING: WHAT YOU NEED TO KNOW TO BECOME DEBT-FREE
If you look up “sequestration meaning” in an online dictionary, you will notice that in international law, it means the confiscation of someone’s property. As harsh as the truth may sound, giving up your assets to become debt-free might save you from years of debt and financial suffering.
HOW IS IT POSSIBLE?
Voluntary sequestration entails a legal process whereby you apply to court to be declared bankrupt. If the application is approved, a trustee/curator is appointed to oversee the writing up of the assets, sale thereof on auction, and distribution of the minimum required benefits to the creditors. You become debt-free within only a few weeks. Instead of paying debt collection fees, monthly legal administration fees, interest, and the debt owed for several years before you are free from the shackles of debt, you can solve the issue within a few weeks. Use this checklist to determine if you qualify for voluntary sequestration.
WHAT ABOUT COURT APPEARANCE?
Although the court has the right to demand your presence, in reality, your insolvency attorneys represent you in court. They file the necessary documents on your behalf, place the required adverts in the newspaper, and publish a notice of your intention to sequestrate in the Government Gazette. They also notify the creditors and make sure all the required formalities are followed. The attorneys negotiate on your behalf with the trustee to have you buy back assets, such as furniture and your firearm. Visit the Government site to download the Insolvency Act for information about the formalities involved.
WHAT IS THE MEANING OF THE MINIMUM BENEFIT IN SEQUESTRATION?
Each creditor with a claim against your surrendered estate must receive at least 20 cents out of the rand, meaning for every R1000 you owe to a creditor, that creditor must at least get R200. If you owe a creditor R 10 000, the proceeds for the sale of your assets must provide for R 2000 on the creditor’s claim.
SEQUESTRATION MEANING: IMPACT OF MINIMUM BENEFIT
It means that with voluntary sequestration, the process must make it possible to pay at least 20% of the debt with the remaining 80% written off. At this point, we should make it clear that the minimum benefit can be from 10 cents to 50 cents out of the rand, depending upon certain factors. These factors are best discussed with our insolvency attorneys. What it comes down to is that you will not have to pay 100% of the amount owed.
WHY IS THIS BENEFICIAL?
Say you owe R200 000 to all the creditors as a collective. If you are unable to pay them, they can apply for a court judgment against you. Your assets can be repossessed, creditors can have your assets sold at the lowest possible price, and you are still responsible for the outstanding amount thereafter. It does not quite seem fair, but it is how it works. A creditor can have the debt sold to another creditor, who will then go out of their way to collect the money owed, plus interest. If you do not pay the debts owed for which judgments have been taken against you, it will negatively affect your credit rating and ability to rent. It can even affect your ability to get employment. Unpaid judgments are valid for up to 30 years.
It thus makes sense to take the first step towards solving a mounting debt problem, rather than waiting for creditors to take action. Creditors do not necessarily want to apply for the compulsory sequestration of your estate because they have the legal fees to cover. They rather attach your assets and sell them, still keeping you responsible for the shortfall.
WHAT IF THERE IS A SHORTFALL WITH THE PROCEEDS OF SALE?
If the minimum benefit is not realised after the assets have been sold on auction, the trustee’s fee paid, and the legal costs covered, then you must pay the shortfall. You can pay it off over a set period without extra interest, meaning it can be paid off rather quickly.
FROM WHEN ARE YOU PROTECTED AGAINST CREDITORS?
The moment the notice of your intention to sequestrate is published, you must stop all payments to creditors. They cannot demand payments of sorts as you are not allowed to benefit one creditor more than the others. The interest is frozen, meaning the debt does not increase. This gives you a welcoming break from payment. It is not a payment holiday. You still owe the money, but they must wait until the court ruling and the sale of proceeds to receive their benefits. If any of the creditors contact you during the time before the final awarding of the sequestration, you can refer them to your insolvency attorneys.
WHAT ARE THE IMPORTANT ACTORS TO KEEP IN MIND?
All formalities must be followed during the application process. You must be insolvent, meaning you must not be able to pay your debts when due and your liabilities must exceed your assets. You will be required to draw up an affidavit and statement of affairs, indicating your exact income and expenses, the amounts owed, and more. You will need to explain the circumstances surrounding the insolvency. Your insolvency attorneys will help with this process as well.
Be honest about your financial situation and list all the creditors and the amounts owed. Do not leave out any creditors. List all your assets and do not attempt to hide anything. You must attend the trustee and creditor meeting and must adhere to the reporting to the trustee arrangements. The trustee will, at the end of the day, give permission for your rehabilitation. It is thus imperative to give your full cooperation.
You are not allowed to act as a director of a company, general trader, hold a liquor licence, or occupy certain government positions while under sequestration.
REHABILITATION MEANING
The voluntary sequestration stays in effect until you are rehabilitated, meaning until the court has ruled that you are no longer under sequestration. Rehabilitation is a legal process that brings an end to sequestration. If you do not apply, then you stay sequestrated for ten years, whereafter you are automatically rehabilitated. It is in your best interest to apply for rehabilitation as soon as possible. You can do so when the time and any other minimum requirements have been met. View more on the rehabilitation process here.
IN CONCLUSION – SEQUESTRATION MEANING FREEDOM FROM DEBT
If you cannot pay your debts and your assets exceed your liabilities, then you meet the requirements for insolvency in South Africa. Instead of waiting for creditors to apply for judgment, take the first step towards becoming debt-free. Read the FAQ page on sequestration for answers to your questions on the meaning and effects of the process. Once you understand the impact and the benefits, apply online here with our free assessment form to join millions in becoming debt-free.
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.