If you are struggling to pay your debts, voluntary sequestration may be one of the last things on your mind. But it should be on your mind. This could be the best way to get back on your feet. To assess if you qualify, you need to determine if you meet the requirements for insolvency. Read on to discover the basics of what you need to know.
WHAT ARE THE REQUIREMENTS FOR INSOLVENCY?
The Insolvency Act of 1936 and its amendments govern the voluntary surrendering of one’s estate in South Africa. The act stipulates that you must be truly insolvent. What this means is that your liabilities must exceed your assets, and you must be unable to pay your debts.
A temporary cash-flow problem does not qualify you for voluntary sequestration. If it is possible to sell assets and pay off all your debts, then this is the better solution. If restructuring your spending makes it possible to pay your basic living expenses and debts when the payments are due, then you should do so. Voluntary sequestration proceedings should not be used to side-step debt obligations.
The voluntary sequestration must be to the benefit of the creditors. The act stipulates that they must be able to receive the minimum required benefits of at least 20 cents out of the rand. If a creditor is owed R100 000, then the creditor must be able to receive at least R20 000 from the sale of your assets on auction as part of the voluntary sequestration process.
In addition, the sequestration costs, legal fees, and the trustee/curator’s fee must be covered through the proceeds from the sale of your assets.
You may not know whether or not you qualify. To this end, seek legal guidance from practitioners specialising in insolvencies to help you determine if you qualify. Get started with our online sequestration assessment form.
INSOLVENCY – WHAT YOU NEED TO KNOW ABOUT THE NEGATIVE IMPLICATIONS
As with any debt solution, voluntary sequestration has positives and negatives you need to know about. Let us start with the negatives:
- You cannot hold certain government employment positions while under sequestration.
- You may not operate as a general trader and cannot hold a liquor licence.
- The curator/trustee must give permission if you want to enter into a credit agreement.
- The credit bureaux will flag your credit record to indicate that you are under sequestration.
- You will need to apply for rehabilitation to bring an end to sequestration or wait ten years for automatic rehabilitation.
- The rehabilitation is a legal process and you will need the services of an attorney, which will also cost money.
- You may lose assets as part of the voluntary sequestration process.
INSOLVENCY – WHAT YOU NEED TO KNOW ABOUT THE POSITIVE OUTCOMES
You receive almost immediate protection against creditors. Once the notice of your intention to sequestrate is published in the Government Gazette and the creditors notified, you must seize all payments to them. This is to prevent one creditor from receiving benefits over the others. The creditors must speak to your attorney and cannot demand payment. They have to wait for the appointment of the curator/trustee and the payment of their minimum benefits from the sale of your assets. Even if you are under debt review, you can still apply for voluntary sequestration.
You can get rid of your debts in a relatively short period and up to 80% of the debt can be written off. If there is a shortfall on the minimum benefits from the sale of your assets, you will have to pay it, but since interest is frozen, this can be done relatively fast over a period of 18 to 24 months or with a lump sum. Your employer is not notified, and you do not have to appear in court. The most important benefit is that you can start fresh with a new estate, not encumbered with debt. You receive a new tax number. Since SARS is also a creditor, it means tax owed to SARS is covered through the sequestration process.
If you want to know more, read our FAQ section for answers to your questions on voluntary sequestration in South Africa.
INSOLVENCY – WHAT YOU NEED TO KNOW ABOUT EXCLUSIONS
Your pension money, personal injury claims money, and tools of trade are not included in the estate. This means these are safe. However, inheritance money and assets are included even after you have been sequestrated, but have not yet been rehabilitated.
INSOLVENCY – WHAT YOU NEED TO KNOW ABOUT THE PROCESS
The attorneys handle the application and ensure the right procedures are followed. It is essential to be honest and to adhere to requirements, including meeting with the creditors.
WHERE TO SEEK HELP
Today is the time to seek debt relief. As leading and experienced insolvency practitioners in South Africa, we have helped many clients to become debt-free and start fresh. Apply now and we will help you through the process every step of the way and guide you on what to do.
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.