Many people are facing the situation where they are unable to pay creditors each month and need to consider debt counselling or sequestration.
Many people refer to sequestration as liquidation or bankruptcy. Liquidation is when a company surrenders all the company assets to creditors. Sequestration is when an individual surrenders all his assets to his creditors. Bankruptcy is a state of your financial position and is the legal term. When your liabilities exceed your assets, you are bankrupt. Is also called insolvent, which is the financial term.
Debt counselling is when you approach a debt counsellor to negotiate with your creditors on your behalf for lower monthly payments on your monthly debt payment. The National Credit Act allows the customer to be protected from his creditors taking legal action against him and debt counsellor is allowed to take legal steps to offer lower monthly payments to creditors.
So when should you apply for debt counselling and when should you apply for sequestration? One of the main requirements to apply for debt couselling is that you must have an income. Your essential expenses, like food and transport, are subtracted from your income. What you have left after essential expenses, like food and clothes, is offered to your creditors as payment each month. So you are able to make part payment instead of full payment to creditors. What you have available after essential expenses is divided evenly among all your creditors each month. All your creditors are included, even the creditors that are up to date.
Debt counselling is beneficial to creditors as well, because they will receive all their money at the end of the agreed term, but over a longer period of time. The customer is saved from blacklisting and can borrow money again when process is complete or situation of customer improves and leaves debt counselling. Debt counselling is voluntary, so you can leave debt counselling when your situation changes for the better.
Sequestration or voluntary sequestration has a more dramatic effect on customer. Sequestration is the customer’s last option to take if debt counselling fails to reach an agreement with all the creditors. Sequestration will be an option as last resort if the customer has no money to offer his creditors each month. So the customer has no income or has no money left after paying for essential living cost to offer creditors.
The customer will go to his attorney and ask to apply for voluntary sequestration at court. The court will appoint an administrator that will take full control over customer’s estate. All assets will be sold, normally via auction or offers from the public. The administrator will deduct his cost from the proceeds and hand balance of funds to creditors. Creditors will normally not get all the money back owed to them. The rest of the debt will be written off by the creditor. The customer will be restricted economicly and will not be allowed to sign any contracts or be a director of any company after sequestration or bankruptcy. On the customer’s credit report will show judgment and sequestration for a very long time.
A customer can apply for rehabilitation after about 5 years, but that does not mean your creditors will forgive you and write off the debt. You might find that you will not be able to borrow from them again until you have paid the outstanding debt owed to the creditor.