Overindebted? Here’s what voluntary sequestration means

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If you don’t take action and seek help, you can land in trouble with your credit providers and even end up in court. Not only will this have a negative effect on your financial situation, but it will also affect your ability to borrow money. You may want to consider voluntary sequestration as an option.

What is voluntary sequestration?

During this process, you and your attorney will approach the court to apply for insolvency. It is your responsibility to prove you cannot afford your debt any longer and to declare personal bankruptcy. It is then up to the court to review and agree to this application.

How does voluntary sequestration work?

When the court agrees you have too much debt and that you are unlikely to pay it back, you will be declared bankrupt and voluntary sequestration becomes an option. With this court order, most of your debt will be written off, including debt not in the application. Credit providers will not be able to take further action against you, such as charging interest or taking recovery action.

Under these circumstances, you are legally required to sell all your personal assets (your house, car, furniture, electronics, and so forth) to recover some of the money you owe your credit providers.

When is voluntary sequestration a good option?

•    You can’t use any other debt relief options.

•    You have assets to the value of at least 15% of the total debt amount you owe.

Things to note:

•    There is no minimum or maximum amount of debt you need to qualify for voluntary sequestration.

•    After the court declares you bankrupt, you are legally obliged to sell your assets.

•    Because this is a legally binding process, your credit providers cannot pursue you any further.

•    However, sequestration can only work if the credit provider stands to gain from the process by recovering some of the debt already owed.

•    Rehabilitation can take several years. You will not qualify for new credit for at least five years.

•    The court may decide not to declare you bankrupt. In that case, you’ll have to find an alternative way of dealing with your debt.

Although your debt will be mostly written off, voluntary sequestration is an expensive form of debt relief. Not only will you have to pay legal fees, but you will also lose your assets. Bankruptcy can also affect your position as a tenant, leaving you unable to find somewhere to live. Consider voluntary sequestration carefully before you begin the process.

This article was paid for by Capitec.

 

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