Understanding Debt Relief Options in South Africa

Debt can creep up on anyone. A job loss, medical emergency, slow business, or the rising costs of living expenses can quickly turn the tables on you. An unmanageable situation can quickly spiral out of control with a debt that continues to grow. In this article, we will be seeing a few debt relief options, including sequestration, in South Africa.

Understanding Debt Relief Options in South Africa

There are several debt relief measures to help individuals regain financial stability. These can range from directly negotiating with your creditor(s) to opting for sequestration as the final route.

Let us see a few options.

Voluntary Debt Settlement

The best way to manage a mounting debt is to reach a new understanding with your credit providers. By this, we mean that you should discuss your predicaments and difficulties and try to reduce the installment due or extend the repayment term.

The credit providers are interested in recovering their full amount, and thus, they are generally open to reasonable negotiations. If credit providers, collection agencies or attorneys are not cooperative then you should report them to the relevant governing body to mediate on your behalf.

While negotiated settlements can be effective, they offer limited legal protection. Credit providers may still take legal action if agreements are breached. This option works best for individuals who have access to lump sums or expect an improvement in their financial position in the near future.

Selling Assets

If selling non-essential assets helps you meet your debt obligations, then you should consider it.

If your assets are financed, then you will have to obtain your credit providers' consent (usually, your bank) before selling them. You need credit providers consent especially where there is an asset that can be sold for less than the settlement value. The bank will confirm the lowest settlement amount they are willing to accept and you would have to sign an acknowledgement of debt for the shortfall.

This shortfall would have to be settled by a payment arrangement agreed to with the credit provider concerned.

Debt Review (Debt Counselling)

Debt Review is often the first option for consumers who still earn a steady income but can no longer meet their monthly debt obligations as they fall due. This option suits individuals who want relief without surrendering their property or facing insolvency.

A registered debt counsellor assesses your finances and negotiates reduced instalments and interest rates as well as longer terms with creditor providers. Home loans can be stretched to 360 months, vehicles to 84 month and unsecured debt like credit cards and loans to 60 months. The home loan does not remain in the process for the 360 months. The home loan is released from Debt Review once the vehicle and/or unsecured debt is settled.

Under Debt Review, your debts are consolidated into a single monthly payment, while ensuring you are legally protected from any further action. The consolidated payment reduces the admin fees that are normally included into the original contractual agreement of each account (R69.00 per account), making them more manageable. You may not take on new credit while you are under Debt Review, but the upside is that you can retain your assets as long as repayments continue and your combined monthly debt installment is reduced by as much as 40%.

This process is regulated by the National Credit Act, which protects consumers from legal action while they pay the restructured contracts under Debt Review.

Administration Orders

If your total debt is less than R50,000, then Administration Orders is another route you may take for debt management and relief. Administration Orders are governed by the Magistrates' Courts Act 32 of 1944 (Section 74). Here, the court appoints an administrator to collect a fixed monthly amount and distribute it among creditors.

This measure can bring immediate relief, but it often comes with drawbacks. Interest may continue to accumulate, and administration fees can significantly extend the repayment period.

In some cases, consumers find themselves paying for many years without seeing meaningful progress. Thus, this option is generally the best for small debts where other options are not accessible and installments should be adjusted in line with income increases to pay down this debt as quickly as possible.

Voluntary Surrender

When debts are secured by assets such as vehicles or property, you may consider voluntary surrender. Voluntary surrender writes off 70-75% of your debt. In this process, your financed assets are handed back to creditor providers to be sold in settlement of the all outstanding debt. As an example, your financed home can be sold to settle all of the debt you owe and you can continue to live in your home for 6-9 months while this occurs.

If, however, you only have paid off assets like vehicles or household contents then these items are not removed from your possession. Paid off assets stand as security for the sequestration costs while you pay the costs off over 18-24 months. As an example if you owe R200,000.00 then you only have to pay R50,000.00 through voluntary surrender at an installment of R2,780.00 over 18 months. Once the R50,000.00 is settled all other debt is written off, your assets are released from security and you are 100% debt free.

Through voluntary surrender you can also write off 70-75% of your unsecured debt by paying cash if you do not have assets. The remaining 25-30% can be covered by using retrenchment/pension/family money as a once-off payment or over a negotiated period preferably not longer than 12 months. This option also works well for South Africans that are working overseas and earning better incomes than if they lived in South Africa. They can pay the cash value off over 12 months.

Compulsory Sequestration

This is not exactly the option you are seeking as debt relief, but rather one that your credit providers use to recuperate debt owed. It is a formal insolvency process governed by the Insolvency Act, where your credit providers force you to be sequestrated.

Through sequestration, a court declares the debtor (you) to be insolvent, and a trustee is appointed to take control of your estate. Assets are sold to pay the credit provider that brought the compulsory sequestration order against you and in return all other debt is written off.

Whether voluntary or compulsory, sequestration will prevent you from obtaining credit for 4 years. However, it can also be seen as an opportunity to start over financially, where under normal circumstances if would have taken you years to pay off your debt and during that time you would also have no access to credit.

Choosing the Right Path

There is no one-size-fits-all solution when it comes to understanding your debt relief options in South Africa. The right option depends on income stability, asset ownership, debt size, and personal circumstances. Seeking advice from a qualified debt counsellor or insolvency practitioner is the way to handle your mounting debts.

At Solvendi, our expert debt counsellors and insolvency practitioners provide a free assessment of your financial situation and advise accordingly. Be it Liquidation for your business or Sequestration for your personal debt, we will help you make an informed decision.

Contact us for a free assessment and more information about our services.

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.

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Contact us to discuss your current situation and receive a free detailed assessment with regards to various debt solutions as mentioned above including how the process works and what your costs will be. We have legal experts with 20 years experience that can guide you through the various processes. 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