Frequently Asked Questions

In South Africa the law doesn’t say “you’re bankrupt”. Instead, it speaks about Insolvency and Sequestration.

You are insolvent if: You cannot pay your debts as they become due or your liabilities (what you owe) are greater than your assets (what you own).

Being insolvent doesn’t automatically mean you are legally bankrupt. You are only legally declared bankrupt when a court grants a Sequestration order.

Signs you may be insolvent: You are unable to meet monthly debt repayments. Creditors are sending letters of demand, summons, or judgements. Your debts are far more than your income or assets. You have shortfalls on repossessed assets like vehicles and homes.

Insolvency Insolvency is a state of economic distress. An individual or company can be insolvent without being bankrupt — especially if the insolvency is temporary and correctable — but not the opposite.

Insolvent individuals / companies can reverse course by cutting costs, selling assets, borrowing money, renegotiating debt or allowing themselves to be acquired by a larger corporation that agrees to take over the insolvent company’s debts in return for control of its products or services.

Insolvency can lead to bankruptcy if the insolvent party is unable to successfully address its financial condition. Bankruptcy (Sequestration in South Africa) is a court proceeding that decides how an insolvent debtor will deal with unpaid obligations. That usually involves selling assets to pay the creditors and erasing debts that can’t be paid. It can release you from most debts, provide relief and allow you to make a fresh start. You can enter into voluntary bankruptcy or Sequestration. To do this you need to complete and submit a Bankruptcy Application. Bankruptcy normally lasts for 24-48 months.

In South Africa, the term “bankruptcy” is not used in law — the formal process is called Sequestration. Sequestration is a legal process under the Insolvency Act where a person is declared insolvent or a company is declared insolvent though a process called Liquidation. There’s no separate “bankruptcy” procedure in South Africa. Sequestration is the bankruptcy process in South African law. You are only legally declared bankrupt when a court grants a Sequestration order.

Insolvency is a financial state in which an individual or a business is unable to pay their debts because their assets are insufficient to meet their liabilities.

On the other hand, bankruptcy is a legal procedure that is initiated when an insolvent party is unable to settle their debts through other means.

To be insolvent means that you cannot essential living expenses and debt instalments as they become due. Your liabilities also exceed your asset value. i.e. if you add all of your paid off assets together and your debt exceeds that value, then you are regarded as insolvent. As such, if you are able to restructure your finances in such a way that you are able to pay your living expenses and debt repayments then you are not regarded as insolvent.