By Angelique Ruzicka, editor, Justmoney.co.za
You’ve got creditors sending you rude text messages, calling you at all hours of the night and day and in some cases they have even rocked up at your door step. You wish there is a way to make them all go away and to start from scratch again because you feel there is no way that you could possibly pay all this debt off.
Dealing with debt is never easy but with creditors constantly harassing you with threats and accusations – is it best to declare yourself bankrupt?
“The perfect time to apply for personal sequestration is when you have too much debt or when you have no income. Or if you do have income but can't pay within a reasonable timeframe and in the eyes of the court, this is normally around ten years,” says Paul Slot, president of the Debt Counsellors Association of South Africa (DCASA).
Sequestration isn’t that simple
The number of consumers with impaired records now stands at around 9.69 million according to the National Credit Regulator. You’d think that with so many people struggling to pay off their debts and getting into arrears there’d be many that consider the option of bankruptcy. But this is not the case and according to one report only 2 994 people and partnerships in South Africa filed for bankruptcy in 2012.
So why do so few people declare themselves bankrupt if they are struggling? The answer lies in the way the bankruptcy laws are currently structured and the way in which you have to go about it. “Bankruptcy is costly which is why it is only referred to as the rich man's solution. The reason why it's so pricey is because it has to be done thorough the High Court and you have to appoint an advocate who has to demonstrate why you should be declared bankrupt.
It can also take a while to achieve bankruptcy – anything between three and 12 months. It must be shown why debt counselling was not considered as an alternative solution to your debt problems. This is why people applying for sequestration is low,” explains Slot.
And bankruptcy doesn’t mean that you don’t have to pay your creditors off. Sequestration entails removing assets and selling them to the highest bidder. “To be sequestrated there has to be some kind of benefit for the credit providers, at least 20c to every rand that was borrowed. If there is no benefit to the credit providers, i.e. if you have no assets and only debt then you won't get sequestrated. Then you have to wait for a credit provider to take judgement against you or enter into an arrangement with them to pay off the debt,” says Slot.
Bankruptcy should not be entered into lightly. It means you will not be able to borrow any more funds, and you will be listed on the credit bureaus for a period of ten years.
However, you can bring an Application of Rehabilitation five years after the date of sequestration, which can be heard by a magistrate or a judge and permission for rehabilitation must be given by a trustee.
So what can you do if you don’t want to declare bankruptcy?
Slot says you can approach the credit provider without assistance and enter into negotiations. “They may not agree but some will agree to do some kind of deal and could even take off a couple of hundred rand off your loan,” says Slot.
“If there is no benefit to the credit providers, i.e. if you have no assets and only debt then you won't get sequestrated. Then you have to wait for a credit provider to take judgement against you or enter into an arrangement with them to pay off the debt,” added Slot.
Debt counselling or consolidating your debts are also options. Debt review and debt counselling are in essence the same thing in that you are put in a debt review program by a debt counsellor.
Anyone who is working and is proven to be over-indebted can apply. The debt counsellor will restructure your debts according to your budget and should give you tips on reducing your living expenses. It’s important to find out upfront what debt counselling will cost you and how long it will take to pay off your debt counselling fees before your debts can be addressed.
Debt consolidation allows you to pay back all of your debt by combining all of your smaller, more expensive debts into one single monthly repayment, as opposed to multiple payments each month. It is generally implemented through a home loan as it is a form of secured finance, and therefore produces the lowest possible interest rate. However, some debt consolidators also offer unsecured debt consolidation services.
Unless you come to an arrangement or pay off your debts, your lenders could still charge you interest and default fees on your outstanding loans. “They can charge you twice the amount of outstanding money in charges in terms of in duplum under 103 (5) of the National Credit Act (NCA). If you have been charged more under 103(5) you can approach them through your attorneys, in person or contact the NCR to complain,” says Slot.