What Happens to Your House and Car During Sequestration in South Africa?
For many people considering sequestration, one of the first questions is: What will happen to my house and car? It is an understandable concern. However, it is important to consider what has usually happened before sequestration becomes necessary.
Financial difficulty is often caused by retrenchment, loss of income, business failure, divorce or a substantial reduction in household income. By the time sequestration is considered, most people have already tried to resolve the problem. They may have negotiated with creditors, made payment arrangements, entered debt review or used other available income to keep their accounts up to date.
Eventually, the repayments simply become unsustainable. At this point, the home and vehicle may already be at risk of repossession or legal action. The Sequestration process does not create this financial problem. It provides a structured legal process for resolving a financial position that has already become unsustainable.
The important question is therefore not simply: “Will I lose my house or car if I sequestrate?”
It is: “If I can no longer afford these assets, how can they be used to help resolve my overall debt?”
What Happens to Your House During Sequestration?
If you own a property, it generally forms part of your insolvent estate. Where the property is bonded, the bank has security over the property and a preferential claim against the proceeds of its sale, subject to the costs and rules of the insolvency process. If you are already unable to maintain the bond repayments, the property may already be at risk. Without another solution, the bank could eventually proceed with legal action and execution against the property.
Sequestration allows the property to be dealt with as part of the overall insolvency process, rather than the home being lost while you continue struggling with the remainder of your debt. The property therefore becomes part of the solution. Its value is used, as far as legally possible, towards settling claims against your insolvent estate.
Do You Have to Leave Your Home Immediately?
No. A sequestration order does not mean that you receive the order today and must leave your home tomorrow. Once your estate has been sequestrated, you are no longer required to continue paying the monthly home loan instalment. The property will be dealt with by the trustee as part of the insolvent estate.
In practice, the administration and sale of the property can take approximately six to nine months, and sometimes longer. During this period, you may generally continue living in the property while the trustee attends to its sale, depending on the circumstances of the estate. This period can provide significant financial relief. For example, if you were previously paying R15,000 per month towards a home loan that you could no longer afford, that payment no longer needs to be made. Instead of continuing to put that money into an unsustainable debt, you have an opportunity to use the period before the property is sold to save towards your next home.
This can help you build up funds for a rental deposit, the first month’s rent, moving expenses and an emergency reserve. You must, however, continue paying for services that you use, such as electricity, to ensure that those services remain available. While moving from a home is never easy, sequestration can provide a valuable transition period. Rather than continuing to pay an unaffordable home loan until the property is eventually repossessed, you have time to prepare financially for what comes next.
What Happens to Your Car During Sequestration?
A vehicle must also be considered according to its financial position. If the vehicle is financed and the instalments are no longer affordable, the finance provider may already be entitled to take legal steps to repossess it. Simply surrendering or losing a financed vehicle does not necessarily resolve the debt. If the vehicle is sold for less than the outstanding finance, a shortfall may remain. Vehicle and property shortfalls can be included together with other qualifying debts in a sequestration.
Sequestration deals with the vehicle and any resulting shortfall as part of the insolvent estate. If a vehicle is fully paid for and belongs to you, it will generally form part of the estate and its value will be considered by the trustee. The treatment of a particular vehicle will depend on its ownership, value, finance arrangements and the circumstances of the estate.
Using Your Assets to Resolve Your Debt
This is perhaps the most important distinction.
There is a difference between simply losing an asset and using that asset as part of a structured solution to insolvency. Without an overall solution, different creditors may pursue you separately. Your vehicle may be repossessed, your property may eventually be sold in execution, and shortfalls may remain after those assets have been sold.
Your other creditors can continue pursuing you for personal loans, credit cards, clothing accounts and other outstanding debts. You may therefore lose the assets and still be left with substantial debt. Sequestration approaches the problem differently. Your assets and liabilities are brought together into one regulated insolvency process. Assets that can be realised are used for the benefit of creditors according to their legal ranking. You are therefore not simply surrendering assets while continuing to carry an impossible debt burden. Your assets are being used to help resolve that debt burden.
Secured Creditors, Shortfalls and Your Other Debt
Home loans and vehicle finance are generally secured debts. This means that when the property or vehicle is sold, the secured creditor has a preferential claim against the proceeds of that particular asset. If the sale does not settle the full outstanding balance, the remaining amount becomes a shortfall claim against the insolvent estate.
Shortfalls, together with other unsecured debts such as personal loans, credit cards and clothing accounts, share in the funds available for distribution to unsecured creditors according to the insolvency process. These creditors may therefore receive only a percentage of what was originally owed. The remaining unpaid debt is dealt with through the sequestration and rehabilitation process and is not carried forward as an ongoing repayment burden after rehabilitation.
This is what makes sequestration a Fresh Financial Start solution
Instead of losing a home or vehicle and still having to repay the shortfall together with personal loans, credit cards and other accounts, sequestration brings these debts together and resolves them through one legal process. This allows you to rebuild your household budget around what you actually earn — without monthly debt repayments consuming income needed for rent, food, electricity, transport and other essential living expenses.
Rehabilitation can generally take place after approximately four years, depending on the circumstances of the estate. Once rehabilitated, you can begin rebuilding your credit profile and may become creditworthy again, subject to your income, affordability and the lending requirements applicable at that time. The objective is therefore not simply to deal with today’s debt. It is to give you the opportunity to reset your finances and build again without carrying an unsustainable debt burden into the future.
The Right Question to Ask about your house and car during sequestration
Nobody wants to give up a home or vehicle. But when these assets have become unaffordable, the important question is no longer simply: “Will I lose my house or car if I sequestrate?”. The better question is: “What will happen to my house and car if I can no longer afford them — and which solution leaves me in the strongest financial position afterwards?”
The answer depends on the value of your assets, outstanding finance, other debts, income and personal circumstances. A proper insolvency assessment should therefore consider your complete financial position before sequestration is recommended.
Speak to Solvendi About Your Options
If you can no longer afford your debt and are concerned about what will happen to your home, vehicle or other assets, Solvendi can assess your circumstances and explain the available options. Our objective is to provide clear information about the process, costs and likely outcome before you make a decision.
Contact us today to discuss your current situation and receive a free detailed assessment of how the process works and what your costs will be. Our legal and insolvency professionals have more than 20 years’ experience assisting people with financial difficulties. Our aim is to ensure that you understand the process and can make an informed decision about your financial future.
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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