Thursday, 30 July 2015

Sequestration as a measure of debt relief in South Africa - Just the facts

#VoluntarySurrender or #Sequestration just the facts.

I wrote a through opinion on the #DebtReview process as a solution to over indebtedness and received a lot of criticism mostly from debt counsellors. My opinions are formed from experience in the debt relief industry as well as studying material produced by some of the leading experts at South African universities.
Here are the facts:

1) Sequestration or voluntary surrender is a legal process under the Insolvency Act.

2) Sequestration was never intended by lawmakers as a form of debt relief but debt relief is more of a consequence of the sequestration process. Insolvency as a legal concept is as old as the worlds financial system and it was always intended to benefit creditors.
As a consequence of sequestration the debtor would experience debt relief and be able to make a #FreshStart. It is believed that a debtor or business man should not be punished for making poor financial decisions.

Here is a brief outline of the debt collections process under South African law.
When a debtor finds himself in financial trouble and he can't make payments to any one or all of his creditors he would in the normal course of the collections process begin to receive
a) Phone calls demanding payment
b) Followed by letters of demand and eventually creditors would appoint attorneys to collect the debt which in turn would also send out letters of demand
c) Summons would be issued to the debtor to appear in court
d) Judgment would be obtained
e) If the Judgment debt is not paid, the attorney would apply to court for an execution order that would have the following effect:
i) Return of any item purchased under a secured debt obligation.
If you bought furniture, car or house it would be attached by the court to be sold at auction.
ii) If there is no item to be returned or the sale of the item does not produce enough to settle the judgment debt the execution order will order the Sheriff to attach any movable property he can find to sell at auction.
iii) Should this not be enough to settle the judgment debt, the attorney would apply to court to have a portion of the debtors salary or income attached. This is called an Emolument Attachment Order.

Each of the debtors creditors would follow this process. In fact, the 1st creditor to complete this process would have an advantage over other creditors as in most cases there would be nothing left to settle other debt. As each creditor does know about the other they proceed on this course regardless of other creditors that might have a claim too.

The goal of the sequestration process is simple. It is to stop this individual legal action by each creditor. Then to group all creditors in a group and to treat each claim of every creditor fairly to the benefit of the group as a whole.
In a normal collections process its a feeding frenzy to obtain as much money from a debtor as possible regardless of other creditors claims.
Often leaving the debtor with no assets, large deductions from his salary and a large amount of un paid debt. This process is ineffective and sadly the norm in most cases.

3) A Sequestration process stops all individual legal action from creditors
Under a sequestration process all of a debtors debt has to be included in the process. No debt may be left out.
If the debtor bought a car or property that was financed by the bank the trustee appointed by the court to deal with the matter will have the job of selling this property for the best possible price.

A distinct difference between a sale by a Sheriff on behalf of a creditor and a sale by a trustee is that the Sheriff will sell an item at the highest bid, this could be far less than what the item is worth or for a much lower amount than what is owed. Leaving a large shortfall after the sale that the debtor would still need to pay.
In a sales process by a trustee the highest possible sales prices is obtained and any debt left after the sale is written off.

4) Sequestration is the only debt relief measure in South Africa that offers a legal discharge or write off of debt. Effectively 75 to 80% of debt is written off.

5) A sequestration application may be made at any point of the collections process regardless of where in the process a creditor is. The sequestration application stops all legal action.

6) A sequestration application stops all further interest and legal charges.

7) It is not true, that a debtor looses everything he owns under a sequestration order. A professional specializing in insolvency needs to be consulted to avoid this.

8) It is often said sequestration is a last desperate option for a debtor.
This is also not true and a statement made by uninformed individuals. Sequestration is the most effective measure to deal with debt currently in South Africa

9) It is often believed that a sequestration order ruins you credit worthy ness/ability to get credit or credit record. This is also a half truth exploited by individuals that have little knowledge of the process.
When you as a debtor are at a point when you are missing payments and facing legal action your credit worthiness or ability to get more credit is effected anyway. Judgments are valid for 30 years and reflects on your payment profile for 5 years. If left like this it will effect you for a very long period. With a sequestration order your credit worthiness is corrected and your payment profile repaired in as little as 4 years. It is not true that a sequestration effects you for 10 years.

10) It is often said sequestration applications are expensive. Again not true if you consider all the facts.
Yes, no court application is free or cheap but considering that 80% of your debt will not be paid works out to a massive saving.

11) The obligation to pay your debt.
A lot of people feel that if you made the debt you have to pay the debt.
People often make poor financial decisions and it would be unfair to punish these people for extended period of time. The effect of sequestration is to offer the debtor a fresh start and to get him back into the economy as soon as possible.

12) You sometimes hear of people that were sequestrated and now they are having trouble being rehabilitated. Again, you have to consult with a professional specialist to assist you with the process. Many people are sequestrated and then left to fend for themselves. A professional will guide you right to the end.

13) Sequestration is embarrassing.
This is not true, no one needs to know your personal financial status and the Sheriff at your door every other day is much more embarrassing.

14) Sequestration can effectively deal with Garnishee orders / Emolument Attachment orders

Why does the Government not promote sequestration like they do debt review?
My opinion is that credit providers lobby government to legislate (make laws) that protect them.
The National Credit Act came into effect just as we entered a recession in South Africa and whether credit providers had a hand in the law or not is a matter of opinion. Government and credit providers had to find a way to deal with possible massive losses and the National Credit Act is a result of that.
I am of the opinion that the National Credit Act was poorly drafted and could have protected consumers more and could have offered more relief. Simple changes to current law could have had a better effect.

It is in the interest of credit providers that you as a debtor are forced to pay back 100% of your debt, plus interest, often doubling or tripling your original debt.
Credit providers are in the business of earning interest simple as that.
The longer you are liable to pay them the longer they can charge you interest and the more money they make.

No debt relief measure is effective if it does not give you a write off of debt.
Yearly many trillions in debt is written off for countries that owes this debt as a relief measure. Why should the same not apply to us?

When you are facing financial difficulty its important to talk to a specialist that will consider all debt relief measures available to find the right fit solution for your situation.
Applying one solution to all debt problems is not just irresponsible its reckless and not to the benefit of consumers.

Eugene Prinsloo
Meecham,Prinsloo & Associates
Personal Debt and Insolvency Practice

Call/Sms/Whats App: 0813166983

Tags: #DebtFreeIn90Days #Debt #DebtReview #DebtCounselling #Sequestration #ResetYourDebt #ExitDebtReview #DebtProfessional #SequestrationProfessional
#MeechamPrinsloo #DebtSpecialist #SequestrationSpecialist

Meecham, Prinsloo & Associates
Personal Debt and Insolvency Practitioners

We are not debt counsellors and we do not offer debt counselling as a solution.

Call/SMS/Whats App 0813166983
Fax 0867644392

Do you know anyone that struggles with debt? Refer them to us and we will take good care of them.
We are also able to offer you a referal commision, so talk to us and let us know who you know that needs help, just send us their email address and we will do the rest.