How can Sequestration help you

Sequestration is the best way to stop your creditors from harassing you.  If you sequestrate, your creditors must claim their monies from your insolvent estate that is managed by a curator. The creditors cannot claim the monies from you. As soon as you decide to sequestrate, you stop paying your debt which increases your cash flow situation immediately. As soon as the provisional sequestration order is granted, no creditor may take any legal action against you and any legal action already taken is suspended.

How does sequestration help you

You can go under debt counselling to consolidate your debt and pay one monthly instalment.  A debt counsellor then acts on your behalf.  You also sort of get protection from your creditors (not fully).  Sequestration gets rid of the debt completely.  Under debt counselling you have to pay all the debt. With sequestration you don’t pay any of the debt.

Also, with debt counselling, your debt in reality grows instead of becoming less, because you pay a lesser amount per month than you should pay on your debt.  Before long, your debt has doubled, Since you have to pay all the debt, plus the interest and the legal costs plus the costs of the debt counsellor and the distribution agent, you will pay your debt for a very long time.

If you sequestrate, you stop paying all of your debt as soon as you have made the decision to sequestrate.  Once you have paid the sequestration costs, there is nothing else to pay and all your money is your own.  You remain under sequestration for four years.  After four years you apply for rehabilitation (also a court application) and your name is cleared.

How does sequestration work if you own a property

You need to own a property to sequestrate, or you need cash.  The cash you need is 20% of the total of your outstanding debt.  You only need 20% cash if you do NOT own a property (house, flat, farm, erf). If you own a property, you don’t need to pay in any cash other than the sequestration costs. You will need to pay in cash if the value of the property is not high enough to sequestrate you with.

The reason for this is that there must be a benefit to creditors if you want to sequestrate. This benefit to creditors must exist on the day of the application.  If you cannot make out a benefit to creditors, you cannot apply for sequestration.  Let’s use an example.

You own a house that has a bond on it for let’s say R500 000 and all your other debt combined is R200 000.  With all your other debt we refer to personal loans, credit cards, clothing accounts and other accounts.

There are three types of creditors:  secured, preferred and concurrent.  A secured creditor is a creditor who has a bond or a lien (like a builder or a landlord).  In a sequestration application, you must be able to show that the secured creditor will be paid in full when you are sequestrated.  Whether this is going to happen in practise after date of sequestration (when the property is actually sold by the curator) is irrelevant. As long as you can show in your application that the value of the property is sufficient to pay the bond in full, you may qualify to apply for sequestration.

A preferred creditor is a creditor that, because of legislation, must be paid after the secured creditors and before the concurrent creditors. You must show in your application that the preferred creditors will get paid 20% in the Rand.  The preferred creditors are, inter alia, the costs of the curator, legal costs, SARS, and wages.  The concurrent creditors are all the remaining creditors, like clothing accounts, loans, and credit card debt and all other types of debt that falls under concurrent debt.

You must also be able to show in your application that the balance of creditors, the concurrent creditors, will be paid 20c in the Rand of the proceeds of the property.

Back to our example:  if your bond is R500 000 and your other creditors are R200 000, the value of the property must be R540 000 (secured creditor to be paid in full – the bond is R500 000, plus 20% of the R200 000 is R40 000). If the value of the property is not at least R540 000, you cannot apply for sequestration.  That is why the so-called 18month sequestration where you pay the debt off is unlawful, because the benefit referred to above does not exist on the day of the application.

In practise

Once the order is granted, it doesn’t matter what the house sells for. (Well, it will matter if the property is sold for very little and there is a huge shortfall, because then you will ask to pay it in when you apply for rehabilitation).  But for the purposes of your sequestration application, it does not matter that the property sells for less than what the property was valued for before the sequestration application.

If  we use our example again – where the bond is R500 000 and the rest of the debt is R200 000 and the property is valued at R540 000 – it will mean that the property must be valued for R540 000 or you can’t sequestrate.

Once the sequestration order is granted, the property will be sold on an insolvency auction. If the property is sold for example for R350 000, the bank who holds the bond, is a secured creditor and must get paid first.  The bank will therefore get everything, it must write the balance of the bond off and the other creditors will get nothing and must write all the debt off.

How does sequestration work if you do not own a property

If you do not own a property, you still have to prove to the court that there is a benefit for your creditors if you sequestrate. The benefit your creditors must receive must be at least 20% (or more) of the total of your outstanding debt.  In this case ALL your creditors are concurrent creditors.  If there are secured creditors, it will probably be a lien (landlord). If you cannot pay 20% of the total of your outstanding debt, you cannot sequestrate.

The so-called cash sequestrations over 18 months

Quite a few attorneys have been struck off the roll already for bringing these types of applications.  One can approach a court and ask for an order like this to be passed, but you have a 50-50 chance of getting the order granted, especially if the application is not correct.  People who give you legal advice on any legal matter who are not registered attorneys, are acting unlawfully and are not allowed to give any legal advice to any person.  There are quite a lot of these “agents” at the moment acting unlawfully.  Be warned that the majority of the “18 month” sequestrations are unlawful and if you participate in it, you are committing fraud.  Rather get proper legal advice from us – we are registered, reputable attorneys.