When is Sequestration the Best Debt Solution: Understanding the Benefits and Considerations

Debt can often feel like an overwhelming burden, causing stress and anxiety for many individuals. When faced with the challenges of significant debt, it's essential to explore the various debt solutions available to find the most suitable path towards financial freedom. One such solution that can provide relief in certain circumstances is sequestration. In this blog post, we will delve into the benefits of sequestration and outline when it's beneficial to consider it as a debt solution.

What is Sequestration?

Sequestration is a formal insolvency procedure designed to help individuals in South Africa who are unable to repay their debts. It involves writing off a percentage of debt and appointing a trustee who will distribute the difference by meeting with your creditors to finalise claims. Sequestration can offer a fresh start for individuals struggling with unmanageable debt, providing a structured way to address financial challenges and move towards a debt-free future.

There are benefits to Sequestration helping you to become debt free

Benefits of Sequestration

1. Debt Relief: Sequestration can alleviate the burden of unmanageable debt, giving individuals the opportunity to regain control of their financial situation.

Debt relief involves the re-organisation of a borrower's debts making it easier to repay. It can also give creditors a chance to recuperate a portion of what they are owed. Creditors are often willing to consider debt-relief measures when the alternative is total default by the borrower. Those eligible for debt relief are released from the burden of debt and are afforded the opportunity to restart their financial future. Without this option, debt would take years to settle and would also grow over time due to interest charges and legal fees.

2. Legal Protection: Once sequestrated, creditors are no longer allowed to pursue legal action against you for the recovery of debts.

The advantages of this is that assets cannot be repossessed through a writ of execution. A court order that allows a creditor to repossess assets to recuperate costs. It also prevents creditors from obtaining an emolument attachment (garnishee order). A court order that allows a creditor to deduct money from your income every month to recuperate costs.

3. Fresh Start: Sequestration provides a clean slate, allowing individuals to rebuild their finances without the weight of past debts holding them back.

Once the 25% is paid back, interest free, an individual is debt free. From this point onward the individual has more cash flow monthly and is also credit worthy in 36-48 months. This means that within 4 years an individual can once again obtain credit and move on with financial goals.

4. Professional Guidance: With the assistance of a trustee, individuals can receive expert guidance on managing their finances and working towards a debt-free future.

When individuals are no longer stressed by debt they can make wiser financial decisions and put available money towards sensible goals going forward. They no longer have to worry about where their next cent is coming from or living from hand to mouth. They also have access to professionals who can advise them to make responsible financial decisions so that their current financial situation does not reoccur.

There are factors to consider when opting for Sequestration as a Debt Solution

Considerations for Sequestration

While sequestration offers several benefits, it's essential to consider certain factors before opting for this debt solution.

1. Impact on Credit Score: Sequestration will negatively impact your credit score and remain on your credit file for up to four years, affecting your ability to access credit during that time.

That being said, and were this solution not available, the individual's credit score is probably already impaired and would remain so until all the debt is settled. This would have taken much longer than the 4 years while sequestrated. The individual would also not be debt free and would have to repay all of their debt, including interest charges and legal fees. This no longer applies when you are sequestrated.

2. Asset Surrender: Financed vehicles and homes will have to be handed back to creditors.

Financed vehicles and homes cannot be retained in a sequestration and have to be handed back to creditors. In the majority of cases, when individuals consider sequestration, assets have already been repossessed or they are more than 3 months in arrears, sitting with a large shortfall that has to be repaid. A shortfall for an asset they no longer own. This in itself becomes a burden as the credit score is damaged due to the arrears/repossession and the shortfall can take years to repay, preventing an individual from moving forward with their financial goals.

3. Employment and Licensing: Some professions and industries have restrictions regarding individuals who have undergone sequestration, which can impact your current or future job prospects.

Individuals employed in banks, insurance industries or estate agencies will jeopardise their employment and their licenses where applicable. It is therefore not recommended to sequestrate if employed in these industries. An individual cannot be a director of a company or a member of a trust while sequestrated. i.e. For 3-4 years.

Is Sequestration Right for You?

The decision to pursue sequestration as a debt solution is a significant one and should be made after careful consideration of financial circumstances and long-term goals. If you are struggling with unmanageable debt and have explored other options without success, sequestration may offer the relief you need to start afresh financially. Consulting with a financial advisor or an insolvency lawyer can provide you with the necessary guidance to make an informed decision.

In conclusion, while sequestration can provide a valuable lifeline for individuals drowning in debt, it is crucial to weigh the benefits against the potential consequences before committing to this insolvency procedure. By understanding the benefits and considerations of sequestration, you can take proactive steps towards resolving your financial challenges and paving the way for a brighter financial future.

If you are struggling with unmanageable debt and have been unsuccessful with other debt solutions, like debt consolidation or debt review. then sequestration could be a lifeline. We have experts 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, Voluntary Surrender, 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 more information,