Insolvency: how insolvency can get you out of debt

When an individual has personal debt that he or she cannot pay, then insolvency is the best option to get out of personal debt. If one does not sequestrate, the problem will just grow and the individual will be a slave of debt for the rest of his/her life. Any judgment that a creditor takes against a debtor is valid for thirty years or until the debt is paid. When a person was declared insolvent, the debt is written off, the judgment falls away and the person never has to pay the debt.

What does insolvency mean?

Individuals sequestrate. Insolvency means that one’s liabilities exceed one’s assets and you can be declared insolvent. Once declared insolvent, no creditor may take any legal action against a sequestrated person and all creditors must write the debt off. During the period of sequestration or the period of insolvency, the individual continues with his/her life as per normal as you are allowed to have an income and live a normal life.

The facts about insolvency

Insolvency is a process designed over many years on an international basis to allow people who have too much debt that they cannot pay to get rid of the debt by sequestrating. If insolvency did not exist, the economy would shrink each time a person or a business experiences financial problems and cannot pay the debt. This would be untenable so insolvency plays a very necessary part of any country’s economy. Insolvency means the debt is “forgiven” and the individual or the business do not have to pay it and can continue to earn an income again. Imagine a world where you cannot start over – where people fall out of the economy because they experience financial problems. It would not work and countries’ economies would shrink to such an extent that it would have a negative effect.

Insolvency is granted by a court order. As soon as the insolvency order is granted, no creditor may take any legal steps against the sequestrated person and any legal steps taken are suspended.

The curator that is appointed by the Master of the High Court after sequestration will wind up the insolvent estate of the insolvent person. Winding up means that the curator must hold meetings with creditors so that they can prove claims and those who do not prove claims will not be paid. Proving a claim means the creditor must arrive at the meeting with a contract or invoice or other documents that proves why the insolvent owes it monies and a certificate of balance. If the creditor does not do this, no claim was proved and the creditor will not be paid.

The insolvent remains under sequestration for four years after which he or she can apply for rehabilitation. Rehabilitation is a court application and once the order is granted and the sequestration order is lifted, the person is not insolvent any longer.

Insolvency means that no creditor of any debt incurred up to date of the sequestration order may collect any debt from a sequestrated person and must write the debt off.

It is the only effective method to get out of personal debt if an individual cannot pay the debt. Debt review is an option but

(a) that means you are actually paying the debt plus

(b) you will pay for a long time which means the debt will increase and not decrease because you are paying a decreased premium and

(c) you have to pay debt review and PDA fees which also eats into your repayments

(d) you have to pay a heck of a lot of legal costs. If you declare yourself insolvent, the debt is written off, you never have to pay and your income is your own.

It is better to declare yourself insolvent as soon as you start experiencing financial problems because it gets you out of personal debt very quickly so that you can rather use your income to your own benefit and not the benefit of your creditors.

Contact Nanika Prinsloo for more information on sequestration and insolvency