Top 5 Myths about Voluntary Sequestration in South Africa

Voluntary sequestration is often misunderstood in South Africa. It is surrounded by myths and misconceptions that prevent many individuals from exploring it as a viable solution to unmanageable debt. While it might sound like a daunting legal process, let's understand the facts so that you can make informed financial decisions. In this article, we debunk the top five myths about voluntary sequestration and clarify how it works in South Africa.

Let's Debunk the Top 5 Myths about Voluntary Sequestration in South Africa

Myth 1: Voluntary Sequestration means Losing Everything

One of the most common misconceptions is that choosing voluntary sequestration automatically results in losing all personal assets. While sequestration does involve the liquidation of certain financed assets to settle outstanding debts, it does not necessarily mean complete financial ruin.

Paid off assets and household contents are not included in the process. Neither is pension funds, life insurance or road accident payouts. Under the Insolvency Act 24 of 1936, your basic assets, such as necessary items for basic living and tools of the trade, will remain safe.

Any financed assets will automatically go back to your bank. All the paid off assets will remain in your possession. This means that even during sequestration, individuals can maintain a basic standard of living and continue to rebuild their financial stability over time.

Myth 2: It Ruins Your Credit Forever

Many fear that voluntary sequestration is a permanent stain on their credit record. In other words, they believe that they cannot take on new credit anymore. While this is true for a limited time, approximately 36-48 months on average, It is not a permanent stain.

In South Africa, individuals who declare themselves insolvent can still rehabilitate themselves after a legally prescribed period. Your rehabilitation can begin as soon as 12 months in specific situations through an early rehabilitation application process. Even if the insolvent does not apply for early Credit Rehabilitation, they are rehabilitated after 10 years automatically by law.

Rehabilitation means their credit record is restored, and they can begin rebuilding their financial credibility. Understanding this process helps individuals view sequestration as a strategic step rather than a lifelong penalty.

Myth 3: Family and Friends are Legally Liable

Some individuals worry that by filing for voluntary sequestration, their family members or friends will be responsible for their debts. This is entirely false.

Voluntary sequestration affects only the individuals who declare insolvency. No legal obligation transfers to spouses, children, or acquaintances unless they have co-signed for the debts.

This myth often adds unnecessary anxiety and prevents people from seeking professional guidance when they need it the most.

Myth 4: All Debts Disappear Automatically

There is a belief that once sequestration is granted, all debts are erased. But in most cases, voluntary sequestration only provides about 60-75% relief from unsecured debts. Some obligations, such as tax liabilities where an acknowledgement of debt was signed, certain court fines, pension backed loans and maintenance orders will continue.

Understanding which debts are affected by sequestration is crucial for planning life after insolvency and avoiding future financial strain. With an expert insolvency practitioner by your side, you may understand your situation better. This clarity allows individuals to make informed decisions and prepare for a smoother financial recovery.

Myth 5: It Makes You A Criminal

The social stigma around voluntary sequestration is strong in South Africa. We do not blame you if you have such a view about the process. However, insolvency is a civil matter, not a criminal one.

Filing for sequestration does not carry criminal penalties unless the debtor engages in fraudulent activities, such as hiding assets, providing false information or it can be proved that they gambled the loans that were granted.

Recognising this distinction can remove the fear of shame and allow individuals to view voluntary sequestration as a legitimate tool for managing a mountain of debt.

Conclusion

Voluntary sequestration in South Africa is often clouded by myths that exaggerate its consequences. By debunking these misconceptions, it becomes clear that sequestration offers a structured, legal way to manage debt, protect essential assets, and regain financial stability.

Understanding the facts will empower you to make informed decisions and approach insolvency with clarity, rather than fear. And of course, with a team of expert lawyers to assist you, voluntary sequestration would become a practical opportunity for a fresh financial start.

For more information about sequestration and bankruptcy, contact our lawyer team 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.

Would like to discuss the effects of sequestration? 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:

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Email: consultations@solvendi.co.za 

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