A Fin24 reader asks:
I want to enquire about insolvency. My debt amounts to about
R200 000 and my monthly income is R9 000. I feel like I'm drowning and the debt
counsellors are unable to help me. I do not own property.
Debt Care 911, a company offering advice to South
Africans under debt pressure nationwide, advises:
When you cannot pay your debts, you are said to be
insolvent. Although insolvency is not a crime, criminal charges can often
follow the sequestration of an estate.
These may be for not having kept proper records of
transactions or for common law crimes such as fraud.
If you are insolvent, you can seek an out-of-court
settlement with your creditors, surrender your estate or in some cases apply to
the magistrate's court for an administration order.
In certain circumstances, your estate may be sequestrated as
insolvent at either your own initiative or that of a creditor.
Sequestration proceedings are designed to freeze an
insolvent estate and to place it in the hands of a trustee, who liquidates it
and distributes the proceeds among various creditors.
If your estate is sequestrated after you have become
insolvent you may, subject to certain conditions, apply for rehabilitation. If
your application is successful, the court will declare that you are no longer
insolvent and that you are free to trade and contract.
Settling out of court
Because a private arrangement with creditors – known as
composition or voluntary distribution – is not governed by formalities, fewer
expenses are incurred than in formal court proceedings.
If you intend seeking an out-of-court settlement, supply
your attorney with details of your debts, income and assets and ask him/her to
propose to your creditors in writing a distribution on the basis of monthly
If your creditors do not unanimously agree to your proposal,
it may have to be abandoned in favour of an administration order or
Although nothing stops you from writing to your creditors yourself
and proposing the distribution, your attorney is more likely to be successful
in negotiating with a dissenting creditor.
An administration order
If your debts do not exceed R50 000, you can apply to the
magistrate's court for an administration order. This gives you a degree of
breathing space by allowing you to pay off your debts, usually in instalments.
Only debts that are due or overdue for payment on the date
of your application are included in the total. If you therefore owe money on,
say, a mortgage bond or a car, include only amounts of the instalments that are
Ensure that a copy of your application is delivered or
posted to each creditor. In certain circumstances you may be eligible for a
moratorium, for example if you are a farmer or if you are performing obligatory
The amount a court may order you to pay will not exceed the
difference between your income and reasonable expenditure.
Once an order has been issued for the administration of your
estate, you may not incur further debts or raise credit without explaining to
the other party that you are under an order of administration.
While an administration order is in force, no creditor has
any legal remedy against you or your property for collecting money owing,
subject to some exceptions, without the permission of the court.