Sequestration, what you need to know

Sequestration proceedings are designed to freeze an insolvent estate and to place it in the hands of a trustee, who liquidates it and distributes the proceeds among its various creditors. Sequestration enables you to regain normality in your financial affairs – where you can adjust your lifestyle to be in line with the available budget, without creditor headaches. You will experience a normal lifestyle without the fear that creditors will phone you day and night from “private numbers” and therefore you can answer your calls fearlessly, and no more fear that the sheriff may make an unwanted house-call.

The Court Rules determines that you pay between 20c and 25c in a rand benefit to your creditors. In other words if you owe Creditor A, R1-00, they should get 25c thereof.

Although you can voluntarily surrender your estate by applying for a sequestration order against yourself, you cannot do so simply to avoid payment of debt. For voluntary sequestration to succeed you must show that:

Your estate is insolvent;
You own sufficient realisable property to meet all the costs of sequestration; and
Sequestration will be to the advantage of your creditors as a whole.

Once sequestration is granted, a trustee will be appointed to attend to the collection, realisation and distribution of your assets. Certain property may not be included in an insolvent estate. This includes:

Pension money;
Compensation payable for loss or damage suffered by reason of defamation or personal injury;
Clothes, bedding, household furniture, tools and any other essential means of subsistence; and
Certain insurance policies in terms of the Insurance Act and certain benefits that are protected by Acts, such as the Compensation for Occupational Injuries and Diseases Act and the Unemployment Insurance Act.

You will be insolvent for at least the next 2 to 4 years. There are circumstances where you can apply for rehabilitation after 18 months, keep in mind that this is an exception rather than the rule. For your insolvency period, you will not be credit worthy. You may receive permission from you curator in certain circumstances for example when you need to purchase a vehicle – this permission will not be granted before a window period of four months, and then the financial institution will require someone to stand as security, keep in mind it is a may and not a definitive. You may not have a cheque account or a credit card facility. You may under no circumstances engage in any debt arrangements.

Be very careful when you consider sequestration. First step is to consult your attorney, providing him or her with all relevant information regarding your income, liabilities and assets. If the attorney agrees that you should surrender your estate, you may have to pay a deposit to meet initial legal expenses. Stay away from so-called sequestration agents, only seek a qualified attorney who specialises in sequestrations. You do not need an “agent” as middleman and have that extra costs too.

If you do not have enough assets in the form of cash and/or assets to at least pay your creditors 25 cents for each rand you owe, your sequestration order will not be granted.