How to Get Out of Debt During the Economic Crisis in South Africa: Filing for Bankruptcy

It is no longer a matter of not getting into debt, but how to get out of debt. The worldwide 2020 COVID-19 health crisis has led to governments taking decisive actions to combat the spread of a potentially devastating disease. However, for many owners of small and medium-sized businesses, this has also meant not being able to operate for the period. Several property owners have gone into debt because their tenants have not been able to pay rent. Investors have lost large amounts of money and tourism came to a halt. The entertainment industry was dealt a severe blow, as well as the people working in these industries.

 

How It Affects You

get out of debtIf you are self-employed, you have probably felt the impact of shop closures and the inability to carry on with services such as computer repairs, vending, child-minding services, dog-walking, and more. Chances are that you may have invested money right before the worldwide shutdown of economic and non-essential services and travel restrictions. This may have left you with little to no money to get through the period. The question now remains of how to get out of debt. You may even have taken out a short-term loan to carry you through the period but, with many businesses having to close their doors permanently and people losing their jobs, your clients have also disappeared. Perhaps you made extra money from selling goods at food or weekend markets and no longer have that income, leaving you with a shortage of funds and not knowing how to get out of debt.

You stocked up on products for the Easter holiday period but are now without a place to sell and no prospect of an income in the near future. Add to this the fact that you are a sole proprietor and thus just as responsible for your business debts as for personal debts and the problem becomes almost unmanageable. How can you pay back the short-term loans for which there are no insurance available? What if your debit order for a long-term personal loan from a credit provider other than a bank has already been rejected because of the lack of funds in your bank account? Your landlord has already demanded payment and, once the economic activities return to normal, you expect that eviction notice.

What if you don’t fall into any of the categories for receiving debt-relief assistance from the banks or one of the government departments? What if it feels as if it is the end of the road financially and you simply don’t know how to get out of debt? The situation is desperate and getting out of debt is not easy, especially if you have already been under debt review when the sudden news came that limited services are allowed. You know that the credit providers can now take immediate legal action and debt review is cancelled. Fortunately, you can still get out of debt and start afresh without the mountains of debt making it impossible to live after the economic crisis.

 

The Solution

Though filing for bankruptcy is the last resort for most people, when it comes to a desperate debt situation such as debt review being cancelled because of debit orders that cannot be honoured, it is the only viable option left. If your debt has spiralled out of control because of the economic crisis, you can opt for voluntary sequestration.

 

Alternatives to Filing for Bankruptcy

If it is possible to sell your assets to pay off the debt in full, then do so. If not, consider voluntary sequestration. Keep in mind that long-term debts, store accounts, and credit cards often have insurance options. If you have paid the insurance associated with these accounts up to date, you can apply to have the insurance company pay instalments for three months or longer. If these options are still available, and using them will help you get out of debt, then do so. If not, consider applying for voluntary sequestration.

 

How to File for Bankruptcy

It is a legal process whereby you apply to court to be declared bankrupt. First, you must meet the requirements for insolvency. Do your liabilities exceed your assets and are you unable to pay debts when due? If so, you are insolvent. If you have exhausted options such as negotiating with your landlord for a payment holiday or the bank for an extension of your home loan, claiming from insurance to pay store cards and long-term debts, and your liabilities still exceed your assets – and you are unable to pay the debts due – you qualify.

However, insolvency proceedings must be to the benefit of the creditors. The proceedings must ensure that creditors receive at least 20 cents out of the rand. This means that, if you owe R100 000 in total (for all the creditors combined), the insolvency proceedings must result in the creditors receiving at least R20 000 from the R100 000 owed. It is thus possible to have up to 80% of your debt written off. The proceedings must also ensure that the legal and administrative costs of the insolvent estate expenses can be covered.

 

About Your Furniture, Children’s Assets, Pension, and Jewellery

At a time when you are already financially down and out, the prospect of losing all your furniture can be daunting. However, it is possible to have the furniture written up as part of the insolvent estate without it being removed from your home. The attorneys negotiate with the trustee/curator for you to buy back the furniture at the low auction reserve price. This makes it possible to even pay for it through instalments. Your children’s toys and assets are excluded from the insolvency proceedings. Your pension money is safe, and you will thus not be left without provision for the future. Costume jewellery is not worth enough to sell on auction. However, prized items such as diamond rings and expensive jewellery will form part of the insolvent estate.

 

Will you lose your employment when you file for bankruptcy?

If you are the director of a company, you will have to resign. You are also not entitled to hold certain government and financially responsible positions. If your employment doesn’t fall into one of the mentioned categories, your employer will not be informed.

 

What about current legal actions?

All legal actions are stayed once the notice of your application for voluntary sequestration has been published in the Government Gazette and the relevant newspapers. Certain procedural requirements must be met, such as notices to SARS and the creditors and the drafting and submission of an affidavit and statement of affairs. You don’t have to attend the court hearing. Creditors cannot demand payment from you, as they are treated as a collective and must thus wait for the court proceedings and sale of assets to receive their benefits. All interest is frozen and garnishee orders on your salary are stopped. You may not make any payments to creditors during this time. As such, you can experience almost immediate relief, giving you the chance to get back on your feet. If you own property, you will have at least three months from the court hearing to find a new abode after having filed for bankruptcy.

If the economic situation in the country has led you to a state of bankruptcy, you can still get out of debt. Get in touch with our experienced insolvency attorneys for more information and help to regain control over your finances.

 


Disclaimer: This article is for informational 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: April 2020.

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