Friday, 27 September 2013

Debt Relief l Case Study: Insolvency vs Debt Review Keywords: debt, debt relief, debt review, insolvency, sequestration, debt counselling, national credit act, debt consolidation, debt free, section 129 notice, interest, home loans.

Case Study: 653/369
Mr Pillay - Durban, KZN
Insolvency / Sequestration application in Durban, Kwa Zulu Natal, South Africa.

The benefit of sequestration or the insolvency process over debt review or debt counselling.

During 2011 Mr. Pillay a husband and father of 2 lost his job due to retrenchment. As most people do, he had several outstanding debts at the time and very unsympathetic creditors. Some were willing to give him a payment break for at the most 30 days to get a new job and resume payments. This proved to be impossible.

Mr. Pillay still had to care for his family and very soon he had no more money to pay towards settlement of his debt.

Creditors started sending him Section 129 notices in terms of the National Credit Act.
(The first step in taking legal action)
In this notice he was advised to seek help from a debt counsellor.
So, desperate for help he contacted one.
They assessed his financial situation and he was told he could not apply for debt review as he was unemployed.
Devastated, Mr. Pillay had no where to turn.

Luckily, 3 weeks later he was offered a job, for much less than he was use to earning but he accepted because he was desperate. So he contacted the debt counsellor again and they accepted his application.

Key tags: debt, debt review, debt counselling, debt review, section 129, national credit act

It was agreed that Mr. Pillay pay an amount of R1550 per month toward the settlement of his debts. One account, an FNB credit card could not be included in the program as FNB had already issued summons. This is a fatal flaw in the debt review process as any debt where the creditor has initiated legal action pay not be included in the process.


With Insolvency / Sequestration any pending legal action is suspended pending the application for sequestration.

He was told the period of debt review would be 5 years. But this made no sense as Mr. Pillay's total outstanding debt was R174 000 excluding interest.
Payments would never settle the debt in 5 years and interest rates continued to accumulate onto the debt so in fact, Mr. Pillay's debt just kept on increasing.
This is another flaw in the debt review process as interest is not ceased on debts and if you don't pay at least the interest monthly, your debt will only increase.
With Insolvency / Sequestration all interest accumulation is ceased.

At any point, creditors may decide to cancel the debt review program and continue with legal action if they feel that this would serve them better.
With Insolvency / Sequestration creditors may not take any further legal action, ever.

Mr. Pillay was told by the debt counsellor that sequestration was not an option as it was too expensive. This is a common myth, often used by debt counsellors to discourage you from investigating other options.
IN FACT - Debt Counselling cost Mr. Pillay more than what sequestration would.
Debt Counselling Cost R3500
Legal Cost for Court Order R7500
Ongoing monthly cost R340

Sequestration Cost. R6000
Payable over 3 months

Two years later, after Mr. Pillay noticed that he was not gaining any ground in settling his debt he opted for sequestration.

Total Debt R221 000
Contribution 25% of debt R56 000
Mr. Pillay had to pay only R56 000 of the R221 000 he owed. The rest was written off. The R56 000 was paid over 18 months.

In 18 months Mr. Pilllay was totally debt free. Had he opted for sequestration before debt counselling he would have achieved debt freedom much sooner.


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