More legal ways to bust debt

Caught up in debt? An administration order or sequestration could provide the help you need.

Are you steering clear of banks and debt collectors? Fear not, there are numerous ways to get out of debt. Last week we discussed debt consolidation and debt review as legal options to handle debt. This week Amos Khumalo, an attorney at Amos Khumalo Incorporated, discusses two more debt repayment options: an administration order and sequestration.

1. Administration order
"An administration order is an order made by a Magistrate Court at the request of either a debtor (who has debts that do not exceed R50 000) or a credit provider. In such a case, the court examines the financial position of the debtor and appoints an administrator to whom the debtor makes regular payments, usually through a garnishee order (when money is paid by a third party in settlement of a debt) on the debtor’s salary," explains Khumalo.
"These payments are divided and paid proportionately among the debtor’s creditors as listed on the court order. An administration order remains on the debtor’s credit record for a period of 10 years, or five years from the date of rehabilitation, which ever date comes sooner, and can be removed from the credit bureau before the 10-year period is up as soon as the order has been cancelled."

Pros

• Can be resorted to for any type of debt, as long as its value does not exceed R50 000.

Cons

• In the long run, the cost of servicing the debt could be quite high, especially taking into account the cost of the admin order, which is about 12% of the repayment instalment.
• The debt and the interest must be repaid in full.
• The fact that you are under an administration order gets endorsed against your credit profile with the credit bureau and is retained for 10 years, or until the order is cancelled (rescinded) by a court.

Sequestration
"Sequestration refers to a legal process whereby a debtor is declared insolvent by the High Court and all the assets of the debtor are placed under the control of a trustee, who is then required to sell such assets and distribute the proceeds among the creditors according to the provisions of the Insolvency Act," explains Khumalo.
"A debtor can bring the application for his own sequestration (also known as a voluntary sequestration) or she can be sequestrated by her creditors (known as a compulsory sequestration).

Pros

• If granted, you would generally have to pay the creditors around 20 cents for every rand owed.
• Creditors must write off any amounts that cannot be recovered from the sale of the assets (such as your cars, house, etc) in your insolvent estate.
• You get a chance to start afresh without being further burdened by your debt.
• Any money earned after the date of the sequestration can be kept by the debtor and may only be used to pay creditors where the money is in excess of the needs of the debtor and his family.

Cons

• The cost of bringing the application for sequestration can be quite high, because they can only be brought at the High Court and advocates must be briefed to appear on behalf of the applicant/debtor.
• Courts are generally reluctant to grant applications for voluntary surrender if the debtor has not yet exhausted options such as debt review under the National Credit Act and where the debtor is unable to show that he will be able to pay at least 20 cents for each rand owed to his creditors.
• The sequestration order is retained for 10 years against your credit profile at the Credit Bureau, or until you are rehabilitated (normally after about four years) .