despite some opposition from the banking industry, the credit amnesty act recently became law after a cabinet ruling. the new legislation is designed to assist consumers who have successfully repaid their debts become creditworthy again in less time. under the credit amnesty act, major credit bureaus will be required to purge negative information from the […]
For individuals encountering significant financial difficulties, sequestration is frequently the best possible alternative when other measures have proven ineffective. This process involves an individual being declared insolvent of outstanding debts he or she does not have the financial means to repay. Sequestration involves a declaration by the High Court of South Africa that an appointed trustee will begin the process of liquidating a debtor’s existing assets to pay creditors. Although this debt insolvency option is more drastic than a consolidated debt review, it does carry some advantages as far as laying the groundwork for financial rehabilitation.
Terms of Sequestration
Under a standard sequestration, an individual does not suffer wage garnishment or a similar measure. His or her salary is kept, along with any income from miscellaneous sources. After sequestration has begun, a debtor will stop all further payments to creditors, and current insolvency legislation dictates that no one undergoing sequestration is allowed to pay one creditor over the others.
Creditors are also notified of a delinquent account holder’s intent to undergo sequestration, but the debtor will need to submit documentation of how this process will benefit both parties. People going through the sequestration process are also not required to notify their employers, landlords or anyone else about this matter. Notice of an individual’s sequestration is published in the Government Gazette, but this measure is in place to give creditors a verifiable record of this process for each debtor.
Advantages of Voluntary Sequestration
Entering into an early-stage sequestration can help many people avoid permanent loss of property or other assets. The main benefits of voluntary sequestration include:
- Blocking of any creditor attempts to seize and sell off assets through writs of execution
- The option to convert a vehicle loan from a bank to a lease agreement without repossession, though the bank holds the final decision
- The use of a trustee to represent a debtor in the High Court, without him or her being required to attend the proceedings in person
Once the sequestration process is complete, the individual can begin rebuilding a more solid financial future without the burden of old debts that have been discharged through sequestration.
Drawbacks of Sequestration
The main disadvantage of sequestration is the noticeable decline in a debtor’s credit score, which can lower chances of being approved for any more loans for at least several years. People who have undergone sequestration typically need to wait a minimum of four years before they can begin the process of reestablishing their creditworthiness. They can then start what is known as sequestration rehabilitation, which will later enable them to obtain credit again from banks or other major lending institutions.
What Happens After Sequestration?
For most people who have completed sequestration, they will eventually want to obtain new loans for college, small business ventures, new property purchases or similar ventures. Four years (in most cases) after their sequestration ends, these individuals can apply for the rehabilitation process. This entails relief and removal of legal insolvency rulings concerning past delinquent accounts, which restores an individual’s eligibility to apply for more credit. Once sequestration rehabilitation is finished, negative information about past debt is removed from a former debtor’s credit history. According to the current terms of the National Credit Act, a sequestration can only appear on a person’s credit report for a maximum of five years.
Home loan sequestration presents a special case for people holding property bond accounts with a bank. Under sequestration provisions, the High Court allows occupancy for up to six months until a homeowner is able to sell his or her property. No rent needs to be paid during this grace period, although some home sellers will sometimes need to negotiate with a bank to accept an offered price lower than the property’s estimated value.
The process of sequestration is the most practical alternative for South African consumers with larger-scale financial problems that cannot be resolved with debt review. Individual creditworthiness does take a negative impact, but records of a sequestration do not affect a credit report permanently. Referrals towards sequestration usually come from a qualified debt relief counselor.