What exactly are the differences between debt review and sequestration in South Africa? At first, it may seem tricky to tell them apart but, a little bit of context will shine the light on this topic and clarify everything in no time.
This blog post will help you understand and identify all the necessary differences between sequestration and debt review.
Sequestration is a declaration that a debtor is insolvent and that their estate is at risk of being legally surrendered to the High Court of South Africa under the Insolvency Act.
Aiming to sell and fairly distribute a debtor’s assets, sequestration is a formal application that can be conducted on a voluntary basis or can be carried out through a court order filed by creditors.
The debtor has to be declared insolvent to be sequestrated, whether forced or voluntary.
Debtors who are unable to pay off their debts, and are factually insolvent, will have to enter the process of sequestration because their creditors would have formally applied to have their estate sequestrated.
On the flip side, insolvent debtors can voluntarily apply to enter sequestration. If the application is successful, the court will appoint a trustee to oversee the selling and distribution of their estate.
In a nutshell, insolvency refers to an individual and/or firm who is unable to meet their financial obligations and ultimately ends up indebted to their creditors.
It may feel intimidating to be closely involved in a legal process to address your debt, but voluntary sequestration has many benefits: becoming debt-free in a short period of time, having the accumulating interest on your debt cease, little to no contact with creditors and getting up to 80% of your debt amount written off.
On the other hand, debt review might be more applicable and better suited to your financial situation.
Let’s compare both processes.
First and foremost, it is important to note that sequestration is not the same as debt review.
Debt review is a relief scheme for over-indebted South Africans introduced by the National Credit Act (NCA) in 2007 where your debt is legally handed over and a repayment plan is put in place to get you out of debt without placing your assets at risk of repossession.
Take note that you can apply for sequestration in South Africa if you are also under debt review.
When entering into the debt review process, you will undergo a free assessment by a registered debt counsellor to confirm your indebtedness. In contrast, with the sequestration process, an application to the High Court needs to be filed to confirm that you are indeed insolvent.
A concise repayment plan will be established throughout the debt review process to help you consistently chip away at your debt. Whereas a trustee will manage the distribution of your assets throughout sequestration. If you decide to make use of attorney services, they will be paid from the selling of the estate.
In the sale of the debtor’s assets, a minimum of 20 cents per rand is paid on each amount owed. Inherited assets and money form part of the sequestrated estate and are at risk of being sold. If you have an inheritance, it may only be safe from repossession once you have entered the rehabilitation part of sequestration.
Interestingly, the sequestration process needs to be completed within a timeframe of 1 to 10 years, whereas the debt review process has no set time limit. Most South Africans finish the debt review process within 3 – 5 years. The best of us speed up the debt review process even further and finish even faster.
For both debt review and sequestration in South Africa, you are unable to enter into any further credit agreements while you undergo the process.
At the end of the sequestration process, you may only apply for credit after a rehabilitation period of five years. Under debt review, after receiving a debt clearance certificate, you can immediately reapply for credit.
No, debt review is not an act of insolvency, this is a misconception. In order to successfully apply for debt review, the applicant must be declared over-indebted, not insolvent. A successful debt review application is based on the principle that the over-indebted consumer is able to make the monthly payments set out in their repayment plan. Thus, the consumer would not meet the requirements of the Insolvency Act in South Africa.
When deciding which debt repayment route is the best for you, be honest with yourself about your debt situation and do not be afraid to seek professional advice or help. We hope this comparison has left you confidently informed and able to manage your debt to take control of your financial future.
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Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.