9 PITFALLS OF DEBT REVIEW AND SEQUESTRATION
Friends and family members do not necessarily give the right advice. What works for one person may not be the solution for another. If you are struggling to pay creditors, seek immediate legal advice to help you choose the correct solution and to avoid these nine pitfalls of debt review and sequestration.
To help you get started, let us take a closer look at what each entails, and which pitfalls to avoid.
HOW DOES DEBT REVIEW WORK?
It is a process whereby you enter debt counselling. The counsellor assesses your financial situation, and if you qualify, negotiates with the creditors for reduced interest and lower monthly payments. All the payments are consolidated into a single more affordable monthly payment. The court confirms this amount, and the distribution agency collects the money from your bank account every month. It then distributes the amounts to the creditors. Once all the amounts have been settled, you receive a clearance certificate, and you can again enter credit agreements. You credit record status of being under debt review is removed and with the on-time payments during the period, you also then have a good credit history.
HOW DOES VOLUNTARY SEQUESTRATION WORK?
It is a legal process whereby you surrender your financial estate and are declared bankrupt. The insolvency practitioner first assesses your financial situation to determine if you will qualify. If you do qualify, then an application is made to court for your sequestration. The intention of your sequestration application is published in the Government Gazette and the creditors are notified. A court date is set for the hearing. If no objections are received, you are declared bankrupt.
A trustee is appointed to oversee the sale of your assets on auction and the distribution of the proceeds to the creditors. The legal costs and trustee fees are also paid from this sale. You stay sequestrated until you have rehabilitated. Once rehabilitated, your credit status changes to rehabilitated. It stays such for a period of five years and is then automatically removed.
WHICH PITFALLS OF DEBT REVIEW AND SEQUESTRATION SHOULD YOU AVOID?
Perhaps easier said than done, but you need to carefully consider how each choice will affect your future credit standing. Both options affect your ability to borrow money, rent a place, and run a company. Do not for one moment think that any of the options provide for a way to escape your financial obligations. In both instances, you will lose something. With debt review, you do not lose your assets, but you have to make sure you can pay the monthly amount for the entire period. If you miss a single payment, the agreement can be cancelled, and you will then be liable for the full amounts and interest payable. The sad part is that you will have to pay such almost immediately. With sequestration, you will lose assets in the process. However, in both instances, you eventually break free from the credit trap.
- THINKING THAT A DEBT HAS EXPIRED
Not listing a creditor and the amount you owe because you have not heard from the creditor for a period of three years can be a huge mistake. It is possible for the debt to have been sold to another creditor, which means you will still be liable for paying the amount owed. Even if you have not heard from a creditor for a long time, if you have not paid the amount due, list the creditor.
- STOP PAYING CREDITORS AS SOON AS YOU START WITH THE COUNSELLING PROCESS
Keep in mind that with debt review negotiations, it is still possible for the creditors to oppose the application. If for some reason, a credit agreement cannot be included in the process and you failed to pay the creditor during the three-month period, you will have to pay up immediately to prevent the creditor from applying for judgment against you. Keep on paying the instalments until the restructuring process has been completed, unless the counsellor advises otherwise. In this instance, save up the money you would have paid to the creditors in case a debt is excluded.
- PAYING CREDITORS AFTER THE NOTICE OF YOUR INTENTION TO VOLUNTARY SEQUESTRATE HAS BEEN PUBLISHED
With the voluntary surrendering of your estate, you must seize all payments to creditors immediately once the notice of the intention to sequestrate has been published. This is to avoid one creditor from being benefited to the disadvantage of the others.
- TAKING THE PERIOD OF NOT HAVING TO PAY CREDITORS AS A PAYMENT-HOLIDAY
Although there may be a period in which you do not have to pay the creditors with the voluntary sequestration application, do not spend the money on luxuries. Act responsibly, as you will need money to start fresh. For one, you will need to find a new abode once your property has been sold on auction.
- NOT CONSIDERING THE HIGH INITIAL COSTS ASSOCIATED WITH DEBT REVIEW
Keep in mind that a large part of the money you will have to pay every month will go towards paying the legal fees and administrative costs associated with collection and distribution of the amounts to the creditors. You can expect to only see a significant reduction in the amounts you owe after quite some time.
- MISTAKENLY THINKING THAT SERVICE AGREEMENTS ARE INCLUDED IN THE PROCESS
If you have bought a vehicle with balloon finance, then it is a lease agreement. This means it cannot be included in the debt review process. At the end of the lease period, you are expected to pay an amount. Only once it has been paid can you take full ownership of the vehicle. This makes it a debt that is excluded from the process. Keep in mind that you will have to save up money during the period to pay the balloon amount when due as you will not be able to refinance that amount while under debt review.
- TRYING TO NEGOTIATE WITH CREDITORS WITHOUT THE HELP OF INSOLVENCY ATTORNEYS OR EXPERIENCED DEBT COUNSELLORS
The moment you admit on paper that you are unable to pay a debt or request to only pay part because of financial trouble, the creditor can apply for the compulsory sequestration of your estate. Why is that? Your admittance of the inability to pay is an act of insolvency. If you cannot pay, get expert legal help on how to go about regarding debt restructuring negotiations.
- HIDING, DISPOSING OF, OR NOT DECLARING ASSETS WHEN YOU APPLY FOR VOLUNTARY SEQUESTRATION
If you are not honest with the trustee about your assets, you can land in deep trouble. Your cooperation with the trustee is essential, as the trustee must give approval for your rehabilitation application.
- DECIDING NOT TO GO THROUGH WITH THE PROCESS ONCE THE NOTICE OF YOUR INTENTION TO SEQUESTRATE HAS BEEN PUBLISHED
This is also an issue once you have applied for debt review. It can be seen as an attempt to stay legal action against you. If, for any reason your financial situation changes before the process has been completed and you can pay all the debts, consult with the insolvency attorneys or debt review counsellors on what to do.
FINAL THOUGHT
These are only a few of the many pitfalls of debt review and sequestration to avoid. Consult with our insolvency practitioners regarding the steps to take in solving your financial problems the right way.
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.