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What is sequestration? & How to avoid a sequestration order

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Though there are better ways to manage having too much debt, some people still go through sequestration.

During the process, they lose everything and damage their credit score.

Let’s look at sequestration, what it is, and most importantly… how to avoid it.

 

What is sequestration

Sequestration is the official term used to describe the process and legal steps that start when a person is declared insolvent because they can’t pay their debts. The process includes selling their belongings, like property and cars, to pay back the money they owe. Sequestration helps manage debt repayment in an organised way by selling the insolvent person’s assets to pay off their debts.

 

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How does sequestration work

Sequestration starts when someone is declared insolvent. A court issues a sequestration order and appoints a trustee. Who sells the insolvent person’s belongings to get money to pay the person’s debts. The process includes checking the insolvency, applying to the High Court, and meeting with creditors. The trustee makes sure the belongings are sold for a good price and that the money is shared fairly among the creditors.

Sequestration involves several steps:

  1. The consumer must prove that they are insolvent
  2. Submit an application to the court
  3. Get a provisional court order
  4. A trustee meets with the creditors
  5. The court issues the final court order
  6. The trustee sells the insolvent person’s belongings
  7. The consumer applies for financial rehabilitation

 

1. The consumer must prove that they are insolvent: The individual, often with the help of a lawyer or financial advisor, must prove that their debts are greater than their assets and they can’t pay what they owe.

2. Submit an application to the court: The individual (again with the help of a professional), submits a formal application to the High Court with a list of their assets and debts.

3. Get a provisional court order: If the court is satisfied, it grants a provisional order. This order is published in the Government Gazette and a local newspaper to inform all creditors and the public. (So that any entitled creditors can make a claim.)

4. A trustee meets with the creditors: A court-appointed trustee meets with creditors to discuss the sequestration and allow them to submit their claims.

5. The court issues the final court order: The court may issue a final order if it finds that sequestration is the best option. The court may consider other debt collection options before its final ruling.

6. The trustee sells the insolvent person’s belongings: The trustee sells the assets and uses the money to pay the creditor claims.

7. The consumer applies for financial rehabilitation: After about four years, the individual can apply for rehabilitation to clear their financial record.

What is financial rehabilitation? It is the process where an individual restores their financial status after being sequestrated.

It officially ends the sequestration and removes the record from the person’s credit history.

After that, the person can rebuild their financial reputation.

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Voluntary vs compulsory sequestration

Compulsory sequestration happens when a creditor or creditors ask the court to declare a person bankrupt and take over their estate. Voluntary sequestration is when the person themselves asks the court to declare them insolvent and surrender their estate. In both cases, the aim is to sell the person’s assets to pay off their debts, but the process is started by different people.

Voluntary sequestration: You apply to the court to have your estate sequestrated, showing it benefits your creditors.

Compulsory sequestration: A creditor applies to the court to sequestrate your estate, proving you are insolvent and it benefits the creditors.

 

Disadvantages of sequestration

There are lots of disadvantages of sequestration. It has a strong negative impact on the individual’s credit record. Which lasts for years. Also, it is an expensive process and it has professional implications. An individual can’t be a director of a company when they are sequestrated.

Here’s a list of the disadvantages:

  1. Losing belongings
  2. It damages credit records
  3. Adds expensive legal and administrative costs
  4. Suffer potential employment restrictions
  5. Endure public stigma

 

Losing belongings: Your assets will be sold to pay off your debts.

It damages credit records: It stays on your credit record for years, making it hard to get credit.

Adds expensive legal and administrative costs: The process can be expensive.

Suffer potential employment restrictions: Some jobs may not hire you if you are sequestrated.

Endure public stigma: The process is public, which can be stressful.

 

How to prevent insolvency and sequestration

Preventing insolvency requires smart financial strategies. Here are some key concepts to help you avoid financial difficulties:

 

Apply for debt counselling (debt review)

Debt counselling and the debt review process was designed to help South Africans who are struggling with an imbalance between debt and income. Talk to a debt counsellor. They’ll consolidate the debt and negotiate with creditors to lower the monthly debt instalment and interest rates. This makes the debt affordable again. Plus, the process offers other benefits like legal protection.

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debt review calculator

What is your estimate?

Try our debt reduction calculator to calculate your lower monthly debt instalment*.

*The calculation is an estimate actual amounts may vary.

What is your estimate?

Try our debt reduction calculator to calculate your lower monthly debt instalment*.

*The calculation is an estimate actual amounts may vary.

debt review calculator
Calculator - Reduced Repayment

Enter how much you're currently paying every month for each of the debts below

 

If applicable, enter your current monthly repayment amount for your home and vehicle debt below.

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Continue by adding what you pay each month for each category below.

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Click 'Check your estimate' to estimate your reduced monthly debt repayment under debt review.

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🏆 New Reduced Debt Instalment

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Talk to a financial advisor and review your finances regularly

Get professional financial advice from a financial advisor to make a plan to recover. Getting advice will cost extra. And this may be more expensive than the other solutions. But having a professional on your side can make a really big difference. Implement a strategy and regularly check your financial situation and adjust your budget as needed. 

 

Use a strict budget, build an emergency fund, and increase income

Want to try and do it yourself? Make a strict budget that focuses on essential expenses and paying off the debt. Cut non-essential spending. Seriously, make some BIG changes. This will help you pay off the debt and catch up. To make this more effective, try and find ways to earn extra money, like part-time work or freelancing.

 

Sequestration vs debt review

Sequestration and debt review are two ways to handle severe debt in South Africa. Sequestration involves a legal process where a person is declared insolvent, and a court-appointed trustee sells their belongings to pay off debts. While, debt review uses a debt counsellor to negotiate lower debt payments and interest rates. Without selling any of the person’s assets.

Debt review is typically seen as a more flexible, less damaging, and less public solution.

Sequestration and debt review compared:

Aspect Sequestration Debt Review
Process Legal declaration of insolvency and sale of assets Debt counsellor negotiates lower payments and interest rates
Credit Impact Long-term negative effect on credit record Cannot access new credit during review but less long-term damage
Control You lose control over your assets You keep your assets and get help managing debts
Duration Effects can last several years Typically lasts three to five years

 

Advantages of debt review: 

  1. Keep your home and car.
  2. Improve credit profile without long-term damage.
  3. Ongoing help from a debt counsellor.
  4. Less public and stressful process.

 

In summary

Sequestration is complicated and costly.

Most South Africans should avoid it at all costs. And, instead, turn toward more disciplined budgeting or professional help like debt counselling (debt review)

If you want to talk to someone about managing your debt, we can help. Try our online assessment at My Debt Hero to see if you qualify to reduce your debt.

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