OVER INDEBTED, WHAT ARE MY OPTIONS?

 

What are your options should you find yourself in the situation of not being able to settle your debts?

 

1.         Administration Order in terms of the Magistrate’s Court Act

             
            Although this still exists it has largely been taken over by debt review, which is a more flexible option.

 

2.         Debt Review in terms of the National Credit Act

 

The National Credit Act introduced a new option open to consumers who find themselves over indebted namely that of going under debt review. 

How does the debt review process work?

 

When the consumer realises that they are over indebted or are in receipt of a letter of demand (Section 129 letter) from the creditor, he can go to a registered debt counsellor and apply for debt review. The debt counsellor then notifies all credit providers and the credit bureau of the application. For the following sixty (60) days no credit provider can start legal proceedings to collect the money from the consumer. During this sixty (60) day period the debt counsellor will negotiate with the credit providers in order to restructure the debt obligations to an affordable monthly instalment. During this sixty (60) day period the consumer should continue to pay the credit providers an amount as advised by the debt counsellor.

 

If all the credit providers consent to the rescheduled amount as proposed by the debt counsellor, the court will grant a consent order. If some of the credit providers do not consent to this amount, the debt counsellor will then bring an application to the Magistrate’s Court to make a recommendation for debt restructuring. The court will then make a court order which is suitable for the consumer. 

 

The consumer would then generally make a monthly payment to an independent National Credit Regulator appointed PDA (Payment Distribution Agent) who will then distribute the payments to the credit providers in terms of the order. The debt review has certain similarities to an administration order but one of its main advantages is that an administration order can only be used should the total debt that are due and payable by the creditor be an amount of R50,000.00 or less. There is no such limit for a debt review. Once all the debt has been paid in full the debt counsellor will then issue a clearance certificate. On receipt of such clearance certificate credit bureaus are required to remove any reference to you being placed under debt review as well as any defaults listed for credit agreements that form the subject of the debt review.

 

 

Is debt review suitable to everyone?

 

Debt review is a useful method of assisting over indebted consumers to find a way out of their debt trap and we are able to assist most over indebted clients with this option. However depending on a persons circumstances the option of voluntary sequestration may be a better option. The main advantage of a voluntary surrender of an estate is that a persons debts are effectively “written off” and they can start building a new estate without carrying these debts with them.

 

3.            Voluntary surrender of your estate (bankruptcy)

 

What is sequestration?

 

Sequestration is sometimes referred to as bankruptcy. What most people mean when referring to bankruptcy is voluntary sequestration. Voluntary sequestration is when a person applies to court to surrender all of his assets to his creditors. The court will in turn appoint an administrator or trustee to control the estate once the application is granted and all actions against you are suspended. The debtor’s assets will be surrendered to such an administrator and will subsequently be sold. The costs of bringing the application as well as the costs of the administrator will be settled and the balance will be paid out to the creditors. The creditors will be forced to effectively “write off” any amounts still owing by you. Once all the debt has been paid in full the debt counsellor will then issue a clearance certificate. On receipt of such clearance certificate credit bureaus are required to remove any reference to you being placed under debt review as well as any defaults listed for credit agreements that form the subject of the debt review.   The main advantage of sequestration is that the debtor will have a clean start with no debt at the end of the process. 

 

To succeed with an application for voluntary surrender you would have to show that:

 

  • You are factually insolvent
  • That there are sufficient assets in the free residue of your estate to off set all the costs of the sequestration
  • That it will be to the advantage of creditors for your estate to be sequestrated.

 

 

What do you mean I am too bankrupt to be bankrupt?

 

One of the essential elements for a voluntary surrender of an estate is that there must be a benefit to the creditors. Once the costs of winding up the estate has been covered, there must be sufficient funds left after the sale of the assets to pay your creditors a (not negligible) dividend. A problem in practice often is that if a client does not come in earlier to us and tries to solve their problem themselves, by the time they come to seek legal advice they have already depleted all their cash reserves and sold or surrendered any assets of value to try and settle their mounting debts meaning that they are left with no assets to form part of a voluntary surrender application and therefore we are unable to sequestrate their estate. Therefore as soon as you realise there is a problem seek legal advice.

 

Feel free to contact us for a no charge initial consultation to discuss your options regarding debt counselling or sequestration.