Do You Know the Difference Between Debt Review and Sequestration?

Life is not always easy. In fact, it can be an uphill battle when creditors threaten with judgments, property foreclosures, and vehicle repossession actions. What is your best option? Read on to learn the difference between debt review and sequestration. Knowing what each entails will help you to make a decision that is best for your particular financial situation.

 

What is Debt Review?

It is a process whereby a counsellor assesses your credit situation. The accounts and financial liabilities that qualify are consolidated into a single monthly repayment, often with reduced interest. Instead of paying each creditor separately, you pay a reduced monthly amount. The amount is then distributed amongst the creditors by the payment collection and distribution firm.

The debt counsellor first negotiates reduced interest and a lower monthly payment with each of the creditors.  The court confirms the final agreed upon amounts to be paid. You are then officially under debt review and a debit order for the amount to be paid and distributed among the creditors is then registered against your bank account. Once all the accounts have been settled, the counsellor gives you a clearance certificate. This can only be given once each of the creditors has confirmed that the amount you owed to them has been paid in full. This clearance certificate serves as your proof of not owing any money to the creditors.

 

What is Sequestration?

sequestrationIt is a legal process whereby the creditors can apply to court to have you declared bankrupt. In this instance, it is a compulsory sequestration. You can apply for the voluntary surrendering of your estate and then it is a voluntary sequestration. In essence, your financial estate is declared bankrupt and placed under the control of the Master of the Court until a trustee/curator is appointed to oversee the sale of assets and distribution of the proceeds amongst the creditors according to their status. With this process, you become debt-free within a few months. However, you lose assets in the process. Up to 80% of the amounts owed is written off.

How is it possible? With the process, a minimum of 20 cents out of the rand must be paid on each of the amounts owed. The payment comes from the sale of your assets on auction. Once sequestrated, you stay officially bankrupt until you have been rehabilitated. If you do not apply for rehabilitation, you stay sequestrated for a period of ten years. However, you can apply for rehabilitation as soon as the time frame and other requirements are met. In general, it takes about four years from the date of sequestration before you can apply for rehabilitation. That said, in various instances, you can apply for rehabilitation soon after, best discussed with our attorneys.

 

What Do the Two Solutions Have in Common?

In both instances, you get rid of your debt. And in both instances, you get protection against further legal action from creditors. In the instance of debt review, you are protected once you have entered debt counselling. With sequestration, it is once the publication of your intention to sequestrate has been published. In both instances, you cannot enter credit agreements during the period. With debt review, it is until you have received the clearance certificate. With sequestration, you can still enter a credit agreement with the written permission of the trustee. In both instances, your credit record indicates your diminished financial capacity to protect creditors or potential creditors. In both instances, you must declare your financial status when asked about it on a form by an employer, credit provider, estate agent, etc.

With debt review, you have the benefit of being able to build up a good credit history since the amounts owed to the creditors are paid monthly. The creditors are usually willing to have you resume your store accounts or credit agreements once you have the clearance certificate. The status is removed from your credit record and you have a fresh start once you have the clearance certificate. With sequestration, the status is changed from sequestrated to rehabilitated. This stays on your credit record for a period of five years, after which it is removed.

In both instances, the creditors stop their harassment and must deal with the counsellor or trustee. You have to qualify for both.

 

What are the Differences Between Debt Review and Sequestration?

With debt review, you do not have to meet with the creditors as the counsellor handles the process. With sequestration, you will have to attend a meeting with the trustee and one with the creditors. In both instances, you do not have to appear in court.

 

Debt Review Has Some Advantages

Here are some of the advantages of debt review:

  • Consolidated lower and more affordable monthly payment to the creditors
  • Often lower interest
  • Protection from the creditors
  • Way to eventually pay off debts
  • Way to build a good credit record
  • You do not lose assets in the process
  • You can keep your service agreements
  • Discreet process without notices to your employer

 

Voluntary Sequestration Has Some Advantages

Voluntary sequestration has the following advantages:

  • You become debt-free within a short period
  • Interest on the amounts is frozen
  • Protection against further action from creditors
  • You can apply for sequestration even if you are under debt review
  • Up to 80% of the amount is written off
  • Your insolvency attorneys can negotiate for the buyback of assets, such as furniture and firearms at a low cost
  • Your pension money and any personal injury claim income are protected
  • All garnishee orders against your salary are cancelled
  • Stop all payments to creditors once the notice of the intention to sequestrate has been published

 

What Are the Disadvantages of Debt Review?

The disadvantages of debt review include:

  • You have to keep paying until all the outstanding amounts have been paid.
  • Creditors can oppose the application.
  • If you miss one payment or pay late, then the creditors can take immediate legal action.
  • You cannot enter any type of credit agreement.
  • Not all types of credit agreements qualify.
  • It can be difficult to keep up with payments.
  • It can take years.
  • Estate agents and landlords are reluctant to rent space to someone who is under debt review, even if it is only the spouse.
  • Your credit record is flagged.

 

What Are the Disadvantages of Sequestration?

The disadvantages of sequestration include:

  • You need the written permission of the trustee/curator to enter a credit agreement.
  • You cannot act as a general trader, be the director of a company, member of a close corporation, or liquor licence holder while under sequestration.
  • If you inherit assets or money, then those assets form part of the sequestrated estate (inheritance is only safe once you have rehabilitated).
  • Your credit record shows that you are sequestrated.
  • You lose assets in the process.

 

In both instances, you will have to pay the legal and administrative costs, but with sequestration, these costs are covered by the sale of assets.

 

Need Help to Determine Which One Will Work Best for You?

Get in touch with our insolvency attorneys for legal guidance on a debt solution that will work best for your particular situation.

 


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.

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