INTRODUCTION
When comparing sequestration vs debt review, there are several differences, and the consumer has a limited understanding of which choice is the better one to make. We will explore these two areas and help you understand that both approaches have advantages and disadvantages.
MISCONCEPTIONS
A lot of people confuse debt review and sequestration. After reading an article about debt review vs. sequestration, I became aware of the widespread misinformation online. As a result, I decided to write a piece that examines the differences between these two topics.
These processes have both pros and cons, and the point of this piece is to clarify the differences: debt review vs. sequestration. Furthermore, it highlights the benefits for South Africans with excessive debt if they decide to follow either of the processes.
Debt review vs sequestration:
A Comparison between Debt Review and Sequestration
Debt reviews have a place in South Africa as a debt relief solution, but it may not always be the best option if the debt is too much. However, sequestration also has its place in South African law as part of the debt relief solutions, but it comes with it own set of positive and negative attributes.
Debt counseling has an encouraging affect, but so does sequestration.
Debt payments are being combined into a single monthly payment.
How much less can the debt repayment be monthly?
Monthly debt payments can decrease by 50–60% compared to the original credit agreement. Sequestration will stop all payments to creditors' apart from the cost of the application.
Once payment is made, it will be for 10–25% of the total debt plus the trustee and master fees. These payments will be interest-free. Debt review vs sequestration, who wins this round? I would say sequestration.
Immovable Property
Immovable property can form part of a debt review application, and the consumer will not lose the property due to the process. However, by using the sequestration process, the consumer will lose the immovable property, whether it's bonded or paid in full. Unfortunately, in this case debt review wins the battle, but not the war.
Vehicle Finance
Vehicle finance can be included in the debt review process, opposed to sequestration, where the vehicle will be repossessed by the financial institution that granted the finance to purchase the vehicle.
Cash flow
With both processes, the consumer will have more cash flow on a monthly basis.
Can creditors seize my movable assets to pay my debt?
Movable assets will be protected by both insolvency and debt review.
What about legal action for in-arrears debts?
Any accounts where legal action was taken against the debtor cannot form part of the debt counselling process. However, with sequestration, all debts are included in the insolvency application. Once again sequestration vs debt review, sequestration wins this battle hands down.
Will the debt be written off?
Sequestration means that up to 90% of the debt will be erased. 10–25% of the financial obligation will be paid interest-free in a maximum of 18 equal instalments or in one lump sum. This sum will be used to repurchase your movable items from the insolvent estate.
Unfortunately, with the debt review application, 0% of the debts will be written off, and all debts will be paid in full, plus interest and administrative costs as well as the costs of the debt counselor. This is much more expensive than sequestration.
Will my movable assets be sold to pay my debts?
With neither one of these processes, you'll lose your movable assets.
When will my credit score be re-established?
The
debt review process allows the credit score to be re-established only once the total debts have been paid in full and the debt review flags have been removed from the credit profile. Debt review, a minimum of five years if the debts are paid in full.
On the other hand, following
rehabilitation after sequestration, your credit score will be re-established in as little as six months from the date of sequestration, and you will be allowed to participate in the economy again.
How long after sequestration can I apply for rehabilitation?
Rehabilitation following sequestration can take approximately anything from 6 months to 5 years from the date of sequestration, depending on whether the
Insolvency Act's rules and regulations were adhered to.
How long will I have to remain under debt review?
Even though the payment plan is calculated over a 5-year period, it is quite improbable that the 5-year term will be adequate to pay off all the debts entirely. Even if interest rates are reduced, the amount paid towards debt is insufficient to pay interest, capital amounts, and administrative expenses. As a result, payment durations for people under debt review are relatively extended.
What if the creditors aren't happy with the negotiated payment amount?
Creditors may notify the debt counsellor that the agreed-upon amount is insufficient and increase the monthly installment at any moment, so you are not guaranteed that the installments will remain the same for the entire payment period.
Do I understand correctly? If I'm going under debt review, any account where legal action took place cannot be part of the application.
Yes, if legal action has already been taken against a debtor, that creditor cannot be included in the debt review application.
What happens to my debt when I'm sequestrated? Do I still have to pay the debts monthly?
You will be unable to pay any debt while insolvent.
How long will I remain bankrupt?
You will remain insolvent until an application for rehabilitation is approved or statutory rehabilitation occurs after 10 years from the date of sequestration.
What if I inherit?
If you inherit anything and the last will and testament is not properly prepared, your inheritance will be included in the insolvent estate. As opposed to debt review, you'll be able to receive your inheritance and use it as you see fit.
I don't want to purchase my movable assets from the insolvent estate. What happens now?
If you do not purchase your movable assets back from the bankrupt estate, they will be confiscated and auctioned off to settle all debts associated with the sale of the movable assets.
I want to open a business; will I be able to be a director of this company?
You are not permitted to serve as a director of a company if you're insolvent. If you're under debt review, you'll be able to be a director of a company, but due to your adverse credit score, you'll be limited in your dealings and will not be able to grow it.
Do I have to open a savings account?
You are not permitted to have a check account if you are insolvent. When under debt review, a cheque account can be opened, but you will not be able to get any credit on the account.
CONCLUSION:Which methods work better? Sequestration or debt review?
There are a lot of positive and negative attributes to both sequestration and debt review. Most of the pros and cons are very much alike. However, the timeframes tell a different story. Starting a debt-free life soonest is leaning 100% towards sequestration.
Sequestration trumps debt review every time. It is certainly true that with each of these processes come certain risks, but the reward is much greater with insolvency than debt review. Sequestration is more cost-effective than debt review. The process is dealt with much faster than debt review.
Is there a consultant that I can talk to that can explain the process to me in normal Afrikaans or English without the legal jargon?Once you complete our
Contact Us Form and one of our debt relief specialists will contact you and explain the sequestration process and what it means to you.
What are the COSTS FOR CONSULTATION with one of our Debt Relief Specialists?FREE: R0.00; NILL RAND...
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I've included a
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'Hello Peter'. This will help you make a decision.
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