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Sequestration and Debt Counselling
Sequestration and debt counselling are both there for people who are over in debt, but to decide which option to take depends on the level of debt from the consumer. Sequestration has a much longer effect on the consumer’s financial credit rating than debt counselling and you need to make sure it is your best option or only option to take
Debt counselling is your first defence against creditors, but if debt counselling does not help you, you will have to consider sequestration. People who have not left their debt or cash flow problem to late should look at debt counselling first.
Debt Counselling
Debt counselling is a voluntary process. You approach a debt counsellor or debt consultant to apply for debt counselling. The debt counsellor will look at your monthly income and expenses. It is essential that you have a monthly income to apply for debt counselling. Your expenses will be split between essential expenses (like food, rent, water, electricity, clothes) and monthly debt payments (like mortgage, credit card, personal loans, and store cards).
The debt counsellor will then deduct your personal expenses from your income. The money you have left will be offered to your creditors. The rule of thumb is that you must be able to offer creditors 40% on unsecured debt, like credit cards, and 60% on secured debt, like mortgage. So if you normally pay your creditors R1000.00 per month, the debt counsellor will be able to negotiate with creditors down to R400 and R600 per month.
Debt counselling will be noted on your credit file with credit agencies, but it is only as long as you stay in debt counselling. Debt counselling is voluntary, so as soon as your cash flow situation improves, you can leave debt counselling. You leave debt counselling automatically when you have paid off all your debt.
If you don’t have any money or very little to offer creditors, you will have to look at sequestration.
Sequestration
Sequestration or voluntary sequestration is when you surrender all your assets to be sold or liquidated to pay back all your creditors. Any shortfall on your account will be written off by your creditors. As soon as the process is complete, you will be debt free and no creditor can claim any money from you.
To be debt free will be a great relief after all the stress with debt you cannot pay. The negative side to sequestration is that you will have a note of sequestration against your credit profile for at least 5-10 years. You will not be allowed to take on new debt because it will show on your credit file and you are not allowed to sign any agreement without the consent from your trustee or administrator who is in control of your estate.
To apply for sequestration you must approach a specialist sequestration attorney that knows the process and can advise you what to do. Your attorney will apply for sequestration at court and motivate the reason why you want to sequestrate. The attorney will draw up an assets and liability table to assess if you qualify for sequestration.
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