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Advantages of Sequestration
Perhaps the most significant benefit to be gained from Sequestration is that it enables individuals to draw a line under their unsecured debt problems and start moving forward. There are some consequences and restrictions on individuals who enter Sequestration but in many instances it may be the best and only way forward to resolve their current situation.
Relief from Credit Provider demands
Once the Sequestration Order is granted an appointed Trustee acts as a mediator between the client and Credit Provider, which can help provide reassurance for both. By providing Credit Providers with the granted Sequestration Order the Credit Providers will stop contacting clients as they can no longer make demands for debt to be repaid as the debt has been legally written off.
Third Party Assistance
Sequestration essentially hands responsibility for your financial affairs over to a licensed Insolvency Practitioner. This arrangement relieves indebted individuals of the need to fend off Credit Providers who in many cases might otherwise be relentlessly demanding payment of outstanding debts. All Credit Provider correspondence can be passed to the Trustee to correspond directly.
Improved Financial Prospect
For anyone facing serious debt problems, this process can provide the prospect of improving your financial position. If not for this process it would take many years to pay off all debt due to accumulating interest charges. This in turn can lead to an individual feeling not just relieved but also as if there is some light at the end of the tunnel. Within 36-48 months after the Sequestration order is granted a client can apply for credit rehabilitation which restores the credit score and credit worthiness.
Debt is Written Off
Once your Sequestration order is granted, the responsibility for paying your unsecured debt will be taken away from you. 60-75% will be written off and interest charges stop. The remaining 25-40% is managed by a Trustee and distributed to Credit Providers. Any Credit Provider that does not put in a claim is written off 100%. Credit Providers may no longer demand payment from you. They must accept the portion of the 25% allocated by the Trustee.
While the advantages of Sequestration are significant, their are some disadvantages. The one that has the most impact is the fact that an individual cannot apply for credit until Credit Rehabilitation occurs i.e. 24 to 48 months.
Impact on Credit Rating
Sequestration will inevitably have a damaging impact on your Credit Rating and the effects will remain for a period of 4 years or until Credit Rehabilitation occurs. In most cases by the time an individual has the need for this solution the Credit Score is already damage. The difference being that Sequestration stops interest charges and debt is settled quickly. It takes a much longer time to pay off debt that is accumulating legal costs and monthly interest.
Financed Vehicles
While you can keep paid up vehicles when you Sequestrate, financed vehicles will have to be sold, transferred or handed back to the bank.
There are instances where banks will allow you to keep financed vehicles, but this is on a case by case scenario and depends on how you have previously managed your vehicle repayments. We do not form part of these negotiations. Any shortfalls from auctioned or repossessed vehicles will form part of the Sequestration process and the shortfall will be written off.
Property must be sold
If the property has already been repossessed and there is a shortfall after the sale of the property, then that shortfall will form part of the Sequestrated Estate. If you still have a home loan with one of the banks then we suggest selling the property or transferring the property into a friend or family members name before considering Sequestration. This process works best with unsecured debt only.
Cannot be a Director of a Company
You cannot act as a Member of a Closed Corporation or as a Director of a Company while you are Sequestrated i.e. 4 years. You can also not have or administrate a Trust Account. Example, Attorney’s Trust Account, Property Agents Trust Account. In some instances permission can be obtained from the Trustee, to act as a Member of a Closed Corporation or Director of a Company. This is an exception rather than a rule.