How Does Insolvency Affect Credit Applications and Records in South Africa?

Before applying for voluntary sequestration, you need to know the answer to the question: “how does insolvency affect credit?” It is essential to understand and come to terms with how it impacts your ability to obtain finance, as well as your credit record, since the status will have an impact on your ability to find a job, run a business, or even open a bank account.

To help you make an informed decision about voluntary sequestration, we thus answer the question: “how does insolvency affect credit?”


How Does Insolvency Affect Current Credit Agreements?

Once the notice of your intention to voluntary sequestrate has been published in the Government Gazette, all legal proceedings by creditors are stayed. The interests on debts are frozen, and garnishee orders on your salary are cancelled. You thus get a type of payment holiday. This means you can use the money you would have paid to the creditors to save up for a deposit on a rental abode or use such for a compromise agreement with the creditors in order to settle debts. Our insolvency attorneys can explain the process in detail.


How Does Bankruptcy Affect Your Credit Record?

Your record states “sequestrated”, and only once you have been financially rehabilitated does it change to “rehabilitated”. Whenever banks or any credit providers view your record, they will notice that you are under sequestration. If you do not apply for rehabilitation, the notice remains the same for ten years. The rehabilitated notice remains on your records for five years.


What is The Impact on Future Loans?

You have to state that you are under sequestration if asked about your financial affairs by a bank or credit provider. You may not enter any loan agreements without the written permission of the curator/trustee. You only regain control over your legal capacity after rehabilitation. Even then, if asked about any past sequestrations, you must answer truthfully. Financial institutions may be reluctant in the future to lend money to you based on your earlier sequestration. This can affect your ability to qualify for a home loan or even just to rent a house.


How Does it Affect Your Ability to Open a Bank Account?

Banks still allow you to open savings accounts, but you cannot open a cheque account.


Does It Make a Difference Regarding Job Applications?

Yes. You cannot hold certain government positions; cannot get a liquor licence for a pub, restaurant, or liquor store; and may also not hold certain financially responsible job positions. You can lose your job if you are currently employed in such a position.


Why Apply for Voluntary Sequestration with Such an Extensive Impact on Your Record?

You have the opportunity to get rid of up to 80% of your debt in one go. You thus become debt free, and once you have been rehabilitated, you have full control over your financial estate. Debt collectors cannot harass you for payment, as you may not benefit one creditor over the others.

On the question of insolvency affecting credit, you thus know that your record will have a flag of “sequestrated” against it. Since you do not want more debt during this period, it does not really impact your financial status. It is something to consider before applying for voluntary sequestration. To this end, get in touch with our attorneys to help you apply for voluntary sequestration in South Africa and assist with financial rehabilitation after sequestration.


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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