Things You Must Know About Declaring Insolvency as an Individual in South Africa

Declaring insolvency as an individual in South Africa entails a legal process whereby you apply to court to be declared bankrupt. As part of the process, you surrender your estate and a court-appointed trustee/curator oversees the sale of assets and distribution of proceeds to the creditors.

The process for applying for declaring insolvency as an individual in South Africa is called voluntary sequestration. Being declared bankrupt helps you to get rid of debt within a short period of time. Let us look at some facts about voluntary sequestration in South Africa to help you make an informed decision regarding the future of your financial estate.


Marriage Agreement and Declaring Insolvency as an Individual

If you are married in community of property, you share an estate with your spouse. This means you are both liable for debts and you share assets. You both need to apply for the surrendering of the estate.

Being married out of community of property in South Africa means you have separate estates. One partner in the marriage can thus declare insolvency as an individual, while the assets of the other partner are protected. The solvent spouse must be able to prove which assets belong to them. If you plan on declaring insolvency as an individual, seek legal guidance on how to protect the assets of your spouse.

When married out of community of property with accrual, the assets of your spouse stay theirs and are protected. You still have separate estates. The accrual system in South Africa comes into play if you divorce. The purpose is to ensure that the assets are divided in a fair manner.


Some Insurance Policies are Affected by Voluntary Sequestration

sequestrationIf you are concerned for the safety of your retirement annuity or your pension when declaring insolvency as an individual in South Africa, you will be glad to know that your pension is protected against the effects of sequestration. This also applies to money that is paid out in terms of a personal injury claim.

The bad news is that some policies and growth fund money form part of the estate. However, insurance policies that you have ceded to creditors do not form part of the estate because the policies belong to the creditors. They can do as they please with those policies. All is not lost since experienced insolvency attorneys can provide you with guidance on how to protect policies that fall within specific categories against the effects of voluntary sequestration in South Africa.


Immigration is Possible Even If You Are Sequestrated

Declaring insolvency entails civil proceedings. It thus does not affect your ability to emigrate, though you have to answer yes on any type of credit or immigration form if asked whether you have been sequestrated. If you hold assets in a country outside South Africa at the time of sequestration, a court order can be used to extend the voluntary sequestration to the particular country.

Declaring insolvency as an individual does not affect your freedom of movement. As such, if you are sequestrated in South Africa, it does not mean you are sequestrated in every other country in the world. Seek legal guidance on the matter as factors, such as assets in other countries and the particular country to which you want to immigrate, must be taken into consideration.


Declaring Insolvency and Your Lease Agreement in South Africa

Voluntary sequestration does not automatically cancel your rental contract unless it has been stipulated in the agreement that the lease comes to an end if you are sequestrated. If not stated in the lease agreement, you can just keep on paying the rent. If, however, you want to terminate the rental contract, then the trustee of the estate must submit a written notice of the lease termination to the landlord.


Inheritance Money and The Insolvent Estate

Keep in mind that any inheritance money forms part of the insolvent estate. This also means that once you have been sequestrated and not yet rehabilitated that any money or assets you inherit become part of the estate. You can decline the inheritance to prevent such forming part of the estate. To this end, seek legal guidance on how to protect assets from an inheritance against the effects of sequestration.


Effects of Sequestration on Tax Liability

If you owe the South African Revenue Services (SARS) money at the time of sequestration, SARS becomes a preferred creditor. This means that after the creditors with security and possible employees, SARS is the next creditor in line before creditors without security. Once sequestrated, you can deem all taxes due to SARS as paid. You receive a new tax number for your new estate.


Transfer of Property After the Application for Voluntary Sequestration

sequestration lawyerDeclaring insolvency as an individual does not start at the date of the court hearing. Indeed, once the intention to voluntary sequestrate has been published in the Government Gazette and a relevant newspaper, your estate is no longer in your hands. You may not make payments to creditors after this date. You cannot sell your property even if there has been an offer on the table before the publication of the intention to sequestrate. This is true even if you have accepted the offer before the notice of intention to sequestrate. All assets and liabilities form part of the estate.

The Master of the Court must first appoint the trustee, who can decide whether or not to go ahead with the sale of the property. In the instance where the trustee accepts the purchase offer, the trustee will consult with the relevant creditor to find out if the creditor agrees or declines the sale.

Where the creditor agrees, permission is obtained from the Master of the Court to go ahead with the sale of the property to the party that made the offer. A second creditor meeting is held where the trustee gets the necessary permission to sell assets in the estate without requiring permission from the Master of the Court. The sale can then proceed.


Credit Agreements After Sequestration

You have a new estate after sequestration in South Africa. This does not mean that you can enter into credit agreements as you wish. The trustee must provide written permission for such agreements. If a creditor, knowing that you are insolvent, extends credit, then you can proceed with the agreement. However, disclosure of your insolvency is important to ensure that the agreement can be legally valid.


Do Not Assume That Debt Has Prescribed After Three Years

Keep in mind that judgements are valid for 30 years in South Africa. If a creditor has not contacted you regarding a particular debt and has not taken judgement against you within the three-year period, then the debt prescribes. However, the creditor could have sold the debt to another firm, who may still proceed with judgement against you. It is thus important to disclose all debts, even the ones you think have prescribed, to the insolvency attorneys when declaring bankruptcy.


What 20 Cents Out of the Rand Means

A minimum requirement for declaring insolvency in South Africa is that each of the creditors with a claim against your estate can receive the minimum benefit as stipulated by law. This normally means a minimum 20 cents to 22 cents out of the rand from the sale of assets as part of the sequestration process. If you owe a creditor R10 000, then the creditor must receive a minimum of R2 000 from the sale of assets as part of the sequestration process.

Though many factors often not considered have been discussed, several other factors must also be considered. First seek legal guidance to help distinguish between urban legends and the truth when declaring insolvency in South Africa.


Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on our attorneys rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.

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