How Does Sequestration Impact Your Salary in South Africa?
One of the most common concerns people have when considering sequestration is what will happen to their salary. Understanding sequestration and the impact on your salary in South Africa is important because many people incorrectly assume that their salary will automatically be attached once they are sequestrated.
Sequestration does mean that your salary is taken away. You can continue working, earning an income and using that income to support yourself and your household. In fact, one of the most important financial changes after sequestration is often not what happens to your salary, but what happens to the debt repayments that were consuming it.
Your Salary After Sequestration
You can continue working and receiving your salary after your estate has been sequestrated. The Insolvency Act recognises an insolvent person's right to earn remuneration for work performed after sequestration.
Your income remains necessary to pay your normal living expenses, including rent, food, electricity, transport, insurance, medical expenses and the costs of supporting your family. For many people, the problem before sequestration was not that they had no income. The problem is that too much of their income was being used to service debt that had become unaffordable.
What Happens to Your Monthly Debt Repayments?
Before sequestration, you may be paying personal loans, credit cards, clothing accounts and other creditors every month. You may also be trying to maintain repayments on a home or vehicle that you can no longer afford. Once your estate is sequestrated, qualifying debts that existed before sequestration are dealt with through the insolvent estate. You therefore do not continue paying those creditors in the same way every month.
This can allow you to reset your household budget around what you actually earn and what you reasonably need to live. Instead of continually trying to service an unsustainable amount of debt, your income can again be directed towards your normal household expenses. This is an important part of the Fresh Financial Start that sequestration can provide.
Sequestration Still Has to Be Funded
There is an important difference between paying your old debt and paying the costs associated with sequestration.
Sequestration does not simply mean declaring yourself bankrupt and having all your debt immediately written off. It is a formal legal process involving a court application and the administration of an insolvent estate. Legal, trustee and administrative costs therefore have to be provided for. For most clients, there must consequently be a realistic way of funding the sequestration process while still being able to afford normal living expenses. This may come from monthly income or, depending on the circumstances, funds available from a retrenchment package, pension fund payout, family assistance or another available source.
If you are unemployed and have no income or access to funds to cover the costs of sequestration, the process may therefore not be a practical solution at that time. This is one of the reasons a proper financial assessment should take place before sequestration is recommended.
Will You Have to Make Monthly Installment Payments After Sequestration?
Sometimes the costs associated with the sequestration estate are structured over an agreed period. For example, where an agreed estate contribution is being paid over 24 months, that monthly payment may continue after the sequestration order until the agreed amount has been settled.
This should not be confused with your salary being attached or the trustee simply taking a percentage of your income every month to repay your old creditors. Where a contribution forms part of your sequestration, the amount and payment period should be explained to you before you proceed so that you know exactly what your financial obligations will be.
What Happens to Pension Fund and Road Accident Fund Benefits?
Certain types of money receives particular protection under South African law. Pension fund benefits are generally protected from attachment by ordinary creditors under the Pension Funds Act, subject to specific statutory exceptions.
Compensation for personal injury is also specifically protected under the Insolvency Act. This is relevant to compensation such as amounts received for injuries and associated losses following a road accident. The important general principle is that these funds are not simply treated in the same way as ordinary assets available to creditors merely because a person has been sequestrated. Where pension or Road Accident Fund benefits form part of your financial circumstances, their treatment can be considered during your sequestration assessment.
What Happens If You Receive an Inheritance?
An inheritance is different. If you inherit money or property while you remain an unrehabilitated insolvent, that inheritance may form part of your insolvent estate and become available for the payment of claims against the estate.
Rehabilitation changes this position. Once you have been rehabilitated, an inheritance received afterwards does not become part of your previous sequestrated estate simply because you were previously insolvent. For many voluntary sequestration clients, rehabilitation is considered after approximately four years, depending on the circumstances of the estate.
Understanding the Sequestration Impact on Your Salary in South Africa
The purpose of sequestration is not to prevent you from earning an income or to leave you without enough money to support your household. For many clients, sequestration means that the salary remains, while the unaffordable debt repayments are dealt with through the insolvency process. There may still be an agreed contribution towards the costs of the sequestration estate, but this should be established and explained before the process begins.
The objective is to move from a situation where debt repayments consume an unsustainable portion of your income to one where your household budget can once again be based on what you actually earn and can reasonably afford.
Find Out What Sequestration Would Mean for You
Every financial situation is different. Before recommending sequestration, Solvendi assesses your income, living expenses, debt, assets and ability to fund the process. This allows us to explain what happens to your debt, what costs will need to be paid and what your household finances could look like after sequestration.
The objective is not simply to remove debt. It is to create a financial position that you can realistically afford going forward.
This is why our expert insolvency practitioners at Solvendi believe in full transparency upon a free assessment of your financial situation. To receive sound legal advice in South Africa regarding sequestration, connect with us today.
Disclaimer: This article is intended for general informational purposes only and should not be interpreted as legal advice. Any actions taken based on the information provided are done so at your own discretion. Solvendi cannot be held liable for any outcomes resulting from such actions. We encourage you to consult with us directly before making decisions solely based on the content of this article.
Contact us to discuss your current situation and receive a free detailed assessment of how the process works and what your costs will be. We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.
If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:
National: 087 220 0710
Head Office: 010 880 7589
Email: consultations@solvendi.co.za
Website: www.solvendi.co.za
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