“I need assistance, I am drowning in debt and receive constant calls from either my creditors directly or some or other debt collection agency. The Sheriff and I know each other on a personal level as the Sheriff is a regular visitor at my house. I do not earn enough to settle all my debts and as such I need a more permanent solution just to breath as I feel that the debt is crushing me. Please what can I do?”
There are various options available to a person who is over indebted, in this article I intend to deal with three and although some might seem plausible these solutions might not be available to everyone.
It needs to be mentioned that all of the options discussed herein below, will have a negative impact on your credit score or credit rating and will any further applications for credit be refused.
The first of these options are Administration.
In terms of Section 74 of the Magistrates Court Act, Act 32 of 1944, where a debtor is unable to pay the amount of any judgment obtained against him in court, or to meet his financial obligations, and has not sufficient assets capable of attachment to satisfy such judgment or obligations and states that his debts due does not exceed the amount determined by the Minister from time to time by notice in the Gazette, then such a debtor may apply to Court to be placed under Administration.
If such an application is made, an Administrator will be appointed in order to divide the monthly payment made to the Administrator between the creditor, which amount will be determined taking into account the amount of money owed to the particular creditor. In simple terms the creditors will receive a payment proportionate to what is owed.
The Court will determine what amount of your income will be used to make payments to the creditors after careful consideration of your income and expenditure.
The downfall however with administration orders are that currently the amount as determined by the Minister is the amount of R50 000.00, which means in order for you to qualify to be placed under administration, your debt should not be more than R50 000.00.
A further downfall with administration, is that only a fraction of the debt actually is settled per month, which means that you will be paying of these debts for the foreseeable future and even if you are to approach the creditors directly, you may not settle one creditor individually as to favour one to the other.
If your debt is more than R50 000.00, Administration is not a viable option.
The second option available to you is Debt review;
So what debt review is, that you or the debt counsellor approaches the Magistrates Court, with an application to restructure your debt repayment through a court approved plan. This normally entails that the interest rate applied by the various creditor or credit providers are adapted and changed so that you pay a lesser instalment per month.
Very much the same as with an Administrator, you will after your application is approved and you are placed under debt review, make payment of the monthly instalment to the debt counsellor who will in turn pay your creditors.
Same as with administration orders, after the order is made by the Court, none of the creditors may execute against your property or institute steps to collect money from you save for the monthly instalment made to the debt counsellor or administrator.
There are however some disadvantages namely:
- You will not be able to obtain any further credit facility with any credit provider;
- Not all debts are covered by debt review, any debt that is subject to legal action are excluded;
- Much the same as Administration orders, debt review and payment to creditors takes years to complete, with debt review, your repayment term is extended which means that you will pay longer to settle the debt, but will ensure that a more manageable instalment is paid;
- Your credit record is affected;
- You have to pay fees to the debt counsellor;
- You will not be able to cancel the debt review process unless all the creditors are settled in full;
- You will have limited control over your finance
The last option available to you is Sequestration:
Sequestration is a legal process by which an individual is declared insolvent by an order in the High Court in terms whereof certain of your assets are handed over to a trustee who sells your assets and ensure that the creditors are paid.
For you to qualify for a sequestration order your liabilities must exceed our assets and must the sequestration be to the advantage of your creditors. The downfall is that there must be sufficient assets to pay the costs of the sequestration application.
Normally you will be required to put forward the legal costs as well as at least 10% of the value of all your liabilities prior to an application being lodged.
A further major downfall to this process is that once you have been sequestrated, your will only be able considered as rehabilitated after a period of 10 years. If you are further employed in a financial institution an order for sequestration might impact your employment.
The advantages of voluntary sequestration are however the following:
- Debts are written off;
- You can still stay in your house for a period;
- No need to pay creditors once the application has been published;
- Your salary is not attached for debt;
- You do not have to lose your furniture or pension
- No court appearance with the application;
- No need to deal with creditors in person or via telephone
Prior to considering the abovementioned options it is advised that you approach a qualified attorney and/or financial practitioner in order to discuss the full impact of these options as there might be alternatives such as a consolidation of loans.
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