Drowning in debt

2012-06-05 07:25

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 instalments.

If your creditors do not unanimously agree to your proposal, it may have to be abandoned in favour of an administration order or sequestration.

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 due.

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 military service.

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.

 - Fin24


  • Clark - 2012-06-07 16:36

    There are many more options to a consumer including meeting your current contractual installments. Once there is a plan you will feel less intimidated and out of control. Measuring your monthly spend will allow you to understand what is available to repay your creditors. If this is less than the contractual amount contact them to arrange for a reduced amount. If they are not willing to agree there are more effective and cost efficient ways to enforce an affordable arrangement such as debt counselling. Sequestration is extremely expensive, requires 20cents in the rand to be distributed to creditors and comes with a long rehabilitation period. Administration orders is possibly the most expensive solution in that administrators usually charge exaggerated fees that requires legal action to challenge. This also comes with a judgment that stays on your record for quite some time. This article provides limited options with poor advice.

  • johan.retief - 2012-06-08 15:42

    Dear reader. Your debt is not that bad. I would estimate that your total monthly payments probably amount to something like R5000pm (+-4 years repayment). This just means that you need to decrease your lifestyle for this time period to get out of it. The trick truly is NOT to make anymore debt during this time. When you have paid of your debt, save at least half of what you used to pay on your debts. Use half of this for your fun purchases and and save the other half for retirement (i.e.R1250pm or 13.8%) of your salary. I do not know what your age is, but if you are around 30, and you continue with this method, you would be incredibly surprised about what you can afford when you are 38. Suffer short term to benefit long term. I understand that each situation is different and things are never this easy...heck, I can't even get it right, but if you try, you will be better off than when you didn't.

  • luthando.mrwebi - 2012-06-12 22:20

    Hi, could you offer some advise? I'm 26, shares in a property (R1.6m - deceased estate), and will be taken for administration according to the lawyers representing a warehouse my brother is leasing and not paying (R115000) for where I signed surety. I'm earning roughly R25k pm. Initially there was an agreement I could pay R10000pm that I have been paying and even more on other months. However they have brought the deadline up to 30 June. I'm running out of options every day and am fearing for my life!

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