Voluntary Sequestration Requirements and Benefits in South Africa

Voluntary sequestration is a legal process whereby an individual applies to have their financial estate surrendered and be declared bankrupt. However, even before voluntary sequestration, a debtor can try to solve their debt repayment problems.

Other Debt Solutions

One such an option is voluntary distribution, whereby the debtor’s attorneys negotiate with creditors to have the debtor enter into a voluntary distribution agreement with the creditors. The debtor then tenders payment of the negotiated amount to the attorney’s offices. The attorney fees are subtracted and the remainder is distributed to the creditors in direct relation to the size of debt owed to each of the creditors. This is done until the debt is paid in full. The debtor can also opt for a moratorium of creditors. In this instance, the attorneys negotiate with the creditors regarding a later payment of the debt because the debtor is expecting to receive a large sum from someone, which would be sufficient to pay the debts. However, many creditors are not eager to negotiate on this and one or two may not cooperate at all.

A third option is that of obtaining an administration order if the debtor does not meet the voluntary sequestration requirements. In this instance, an application is made to the Magistrate’s Court to have the debtor placed under administration. It is a suitable option if the debt is less than R50 000. The debtor can also enter into debt review. It is also a legal process whereby the debt counsellor negotiates with creditors to accept a lower monthly payment and often at a lower interest. All the amounts are consolidated into a more affordable single monthly instalment, which is deducted from the debtor’s salary and distributed by a distribution agency. The debtor must still pay the legal fees, debt review costs, and the distribution fees. However, if the debt is substantial and it is not possible for the debtor to pay off the amount within five years it is time to consider voluntary sequestration.

Voluntary Sequestration Requirements

The debtor must meet the voluntary sequestration requirements. One such a requirement is that the debtor must be factually insolvent and thus unable to pay the debt. The debtor’s liabilities must far exceed their assets. They must have enough assets to ensure the sale thereof at auction will provide for sufficient minimum benefit to the creditors. The assets in the estate must be enough to ensure that the sequestration costs, legal fees, and estate management fees can be paid. The debtor must have an income to ensure that the remainder of the debt can be paid off. The sale of assets must be sufficient to guarantee at least 20 cents out of the rand to creditors.

Benefits of Voluntary Sequestration

If the debtor meets the voluntary sequestration requirements, they can get rid of up to 80% of their debt in one go. All garnishee orders against the debtor’s salary are cancelled and creditors cannot make any further claims against the debtor. In addition, creditor harassment ceases, as creditors must work through the debtor’s attorney. It is illegal to make any further payments to the creditors once the notice of intention to sequestrate has been published. This is so to prevent one creditor from being benefitted to the disadvantage of the others.

The debtor does not have to attend the court hearing as the attorneys represent the person in court. In addition, the debtor’s salary cannot be attached. The debtor is allowed to stay in their house for a period without having to pay the bond. The debtor becomes debt-free and can, after a period of four years, apply for rehabilitation, provided the requirements for rehabilitation have been met.

 


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 – May 2018.

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