Sequestration Explained Simply

Sequestration is the process of selling or using assets to cover outstanding debts with creditors. Sequestration is presented in two forms in South Africa: Voluntary sequestration, where the indebted individual opts to use assets to cover debts, and compulsory sequestration where a court attaches assets as a form of settlement for debts. 

Sequestration is the voluntary surrendering of your estate (financial affairs) to the High Court under the governance of the Insolvency Act 24 of 1936.

It is an application brought in the High Court of South African, by an attorney in cooperation with an advocate on behalf of the debtor which ultimately allows the debtor (the applicant) to write of 80% of his/her debt as a final resort to escape insurmountable debt accrued through circumstance beyond his/her control.

Sequestration is thus the process by which a debtor who has become insolvent (someone who’s financial liabilities exceeds that of his/her income) can obtain the legal status of Insolvent in order to enjoy the benefits of the status.  The debtor is relieved from further obligation to pay his/her creditors as stipulated by the original creditor’s agreement, and the creditor’s agreement and claims are brought to a close once they have received their benefit from the insolvent estate.  

Sequestration (Personal Insolvency)

Sequestration is a debt solution, which should not be taken lightly, as it can have serious implications on a consumer’s credit record for an extended period of time.

Sequestration entails removing the clients’ assets and selling them to the highest bidder, making the client inadmissible of borrowing any more funds, as well as listing the client at the credit bureaus for a period of ten years. However, the process allows the client to bring an Application of Rehabilitation five years after the date of sequestration, which can be heard by a magistrate or a judge and permission for rehabilitation must be given by a trustee.

Two types of sequestration include:

  • Compulsory Sequestration applies to debtors that do not have a business and cannot pay off debts as an individual, therefore resulting in credit providers applying to have the client’s estate sequestrated, on their own terms.
  • Voluntary sequestration refers to debtors who apply for sequestration on their own accord, for instances where they have large amounts of debt that will take more than 10 years to pay back.

What are the positive effects of sequestration?

  • You rid yourself of 80% of your debt, and the remaining amount to be paid to creditors will not be subject to additional interest once the application has been brought.  This places a halt on exorbitant interest on capital amounts and makes repayment more manageable, affording you the ability to rebuild your financial life anew.
  • Legal proceedings undertaken by your creditors, their attorneys and/or their debt collectors will be stayed. Once the sequestration order has been granted by the High Court they will have to wait for the court appointed curator to pay to them, their rightful creditor’s benefit.
  • Harassment by creditors is minimized (if not eliminated) as it is referred to the attorney who undertakes your case.
  • Your future income is protected through preventing creditors form attaching garnishee orders to your salary and/or freeing you from garnishee orders already in force on your future income.
  • Your payment of your creditor’s benefit (the remaining 20% of your capital debt) and the costs of the application is often a third or less in monthly premium than what you have been paying in full to creditors, affording you the opportunity to address the financial obligations of your day to day living expenses with more ease.
  • Payment of you creditor’s benefit is not subject to any form of interest and thus places a definite end date to your financial struggles.
  • Original creditor’s agreements may be voided and the creditor’s relationship with the debtor will be brought to an end without additional interest or hidden fees chargeable under the original agreement.

What are the negative effects of sequestration?

  • You will not be able to act as a member of a Closed Corporation or as a director of a company.
  • Your credit record with the credit bureaus will reflect your insolvent status which will prevent you from obtaining further credit until you have been rehabilitated. This is for a duration period of ten years. However, the process allows the client to bring an Application of Rehabilitation five years after the date of sequestration, which can be heard by a magistrate or a judge and permission for rehabilitation must be given by a trustee. Be advised that an Application of Rehabilitation is not granted wantonly; there is strict criteria’s that have to be met to satisfy the court before a magistrate or a judge will grant such.
  • Some high end financial employment positions may be affected negatively and should be double checked by your company’s policies and procedure.
  • Unfortunately you would not be able to keep your property if you undergo sequestration.

If your vehicle is under hire purchase:  Rules of Court stipulate that any bank may repossess the vehicle.  If your vehicle is paid in full, it will form part of your assets and form part of the sequestration process.

Unfortunately you would not be able to keep your property if you undergo sequestration.  In many cases clients use the equity that has built up on the property value to cover the costs and the creditors benefit required for sequestration.  Provided that there is enough equity available clients often need not pay in additional funds for their sequestration which is a real bonus when there is already heavy financial strain.

If your property is already scheduled for an auction it is very important that the process is set in motion as soon as possible.  Once the surrender of your estate is published in the Government Gazette, all proceedings against you must be stopped.

A valuation is done on your property by an appraiser.

The Trustee appointed by the Master of the Supreme Court, will market the property first, in other words, they instruct agents to sell the property.  The agents will contact you and make appointments just like a normal purchase and sale of a property transaction.

You will be able to stay in the house for at least 3 to 4 months.  Once the trustee is appointed, he or she will make further arrangements with you.  You will however still have to pay water and electricity.

The Trustee will give you at least 30 day’s notice to vacate the property.  It would not be advisable to vacate the property before you are advised to do so.  Properties are sold much easier if there are still people living there.  At the same time you are looking after the property so that it is not vandalized – otherwise the Trustee must appoint guards which means unnecessary expenses for the insolvent estate.

If the property is sold for less than the outstanding mortgage, you will NOT be held liable for the difference. Your creditors can’t hold you liable for any losses they endure because you are sequestrated.

The other positive thing about the house is that you are not concerned with the particulars of the sale. The transaction is all handled by the Trustee.

IT IS IMPORTANT TO KNOW THAT IF YOU HAVE PROPERTY, MOVABLE OR IMMOVABLE – NO ESTATE SURRENDER CAN BE DONE WITHOUT INCLUDING THE PROPERTY.  THE PROPERTY IS AN ESTATE ASSET AND SHOULD UNFORTUNATELY BE INCLUDED IN THE PROCESS. 

If your vehicle is under hire purchase:  Rules of Court stipulate that any bank may repossess the vehicle.  Court Rules determine that hire purchase falls within the Law of Insolvency and the vehicle’s payments must be made timorous and should be up to date.  Should the installments on the vehicle be up to date, financial institutions are willing to consider your request to keep the vehicle more indulgently and may result in you being able to keep the vehicle.

If your vehicle is under lease it does not fall within the sequestration.

If your vehicle is registered in another person’s name:  If your vehicle is registered in another person’s or legal person’s name, it will not form part of the insolvent estate.

If your vehicle is paid in full, it will form part of your assets.

While sequestration is a form of debt solution, it should certainly not be the only option you consider.

First and foremost, it is important to realise that with sequestration, you will be losing assets, which might be valuable or even sentimental to you, to pay off debt. Debt counselling could offer a less drastic option for those who would like to become debt free without losing assets such as your home or car.

Debt counselling provides the opportunity to bring your monthly debt repayments down by as much as 30 – 50% (but debt counsellors have been able to negotiate reductions as much as up to 60% in the past). Professional debt counsellors can negotiate lower interest rates and fees with creditors. The outcome is one affordable monthly installment, making provision for you to cover your normal living expenses as well.

Considering Sequestration? Speak to us first!

Often sequestration is considered as a last resort by those who are overwhelmed by their debt. Unfortunately debt doesn’t discriminate – it can affect anyone of any age and background – it is how you handle it that makes all of the difference. At OUDS, we offer debt counselling help to those who might feel that sequestration is their only answer.

There are many other benefits to debt review which will allow you to experience a better quality of life, for example: 

When a business fails and is unable to pay its debts, it is placed into liquidation. Liquidation encompasses the process of a liquidator taking charge of the estate and selling the assets by way of public auction. If auctioning off the client’s assets does not generate enough revenue to pay off debt, credit providers will turn to personal sureties to pay the difference. If the directors or members cannot settle the outstanding debts, then they have the option to include these debts under debt review, or apply for sequestration in their personal capacity.

Benefits Exclusive to Oyisa United Debt Specialists:

  • Tailored repayment structure unique to your individual needs;
  • Accumulate your debt into one easy and affordable installment, you pay one affordable monthly repayment amount towards all your debt 30% and up (though  higher reductions are case dependent as nobody shares the same debt concerns or balances);
  • Negotiating better interest rates with your creditors;
  • Extending your debt repayment periods,
  • enables clients to make monthly debt repayments;
  • Cash flow relief from your next pay cheque;
  • Provide for your family’s vital living expenses;
  • Pay off your debts in a reasonable time period;
  • Protection against your credit providers relieves clients from creditors and debt collectors harassing you for money, they are to communicate your DC not you!
  • The National Credit Act protects you, you are legally protected in terms of the NCR;
  • Your assets listed under the Debt Review process are also legally protected;
  • No more financial stress!
  • Free debt assessment;
  • A Debt Counsellor will formally review the clients finances, develop a suitable monthly budget and negotiate with credit providers on their behalf;
  • Personal Relationship Manager guiding you through the process;
  • Maps out the path for reducing bad debt and becoming debt free;
  • Oyisa’s debt counsellors will educate clients about their financial rights and how to work better with their finances;
  • Nationwide Assistance;
  • Prevents clients from declaring bankruptcy;
  • Legally clear your “blacklisting” by getting a Clearance Certificate upon completion of the Debt Review process;
  • You have the opportunity to repair your credit profile;
  • The cost of this process is much less than that of foreclosure, Administration, judgment and sequestration;
  • Decreases the chances summonses and judgments against clients;
  • Optional cover through inexpensive Credit Linked Insurance (discuss this option with you DC).

Liquidation (Business Insolvency)

Liquidation (Business Insolvency)

When a business fails and is unable to pay its debts, it is placed into liquidation. Liquidation encompasses the process of a liquidator taking charge of the estate and selling the assets by way of public auction. If auctioning off the client’s assets does not generate enough revenue to pay off debt, credit providers will turn to personal sureties to pay the difference. If the directors or members cannot settle the outstanding debts, then they have the option to include these debts under debt review, or apply for sequestration in their personal capacity.

Remember above all else that you are not alone out there.

TALK TO US!!!

WE CAN HELP!!!

Contact OUDS directly for more information on debt consolidation, our effective debt counselling process OR any of our other offered Phalanx© services.