Debt Review vs Sequestration: Understanding Your Options

The fundamental difference

Debt review re-arranges what you pay. You keep your assets and you repay your debts on restructured terms under a court order.

Sequestration sells what you own. Your estate is placed in the hands of a trustee, your assets are realised, and the proceeds are distributed among your creditors. It is governed by the Insolvency Act 24 of 1936.

One is a repayment mechanism. The other is an insolvency mechanism. They are not on a spectrum of severity so much as they are different answers to different questions.

Sequestration was written for creditors, not for you

This is the part that surprises people. The object of the Insolvency Act is the due distribution of a debtor's assets among creditors in order of their preference. Voluntary surrender - where you apply to court to surrender your own estate - was designed for the benefit of creditors rather than as relief for a harassed debtor.

That is why a court must be satisfied that sequestration will be to the advantage of creditors. If there is nothing meaningful to distribute, the application is not a route out.

Sequestration can be voluntary, where you apply, or compulsory, where one or more of your creditors apply.

Rehabilitation: the timeline nobody mentions upfront

Sequestration does not end when the assets are sold. You remain an insolvent until you are rehabilitated, and rehabilitation is a separate court application.

Under section 124(2) of the Insolvency Act, no application for rehabilitation under that subsection may be granted before four years have passed from the date of sequestration, except on the recommendation of the Master.

Under section 127A, an insolvent who has not been rehabilitated by a court within ten years of the date of sequestration is deemed rehabilitated after that period, unless a court orders otherwise on application by an interested person.

Section 129 sets out what rehabilitation actually achieves: it puts an end to the sequestration, discharges all debts that were due or whose cause arose before the sequestration and which did not arise out of any fraud on the insolvent's part, and relieves the insolvent of every disability resulting from the sequestration.

Choosing between them

• You have income and want to keep your home and vehicle: debt review is the mechanism designed for that. Note that a re-arrangement changes payment terms - it does not cancel a credit provider's security.
• Your debts genuinely cannot be repaid on any realistic restructured terms, and you have assets whose sale would meaningfully benefit creditors: sequestration is the conversation to have, with an insolvency attorney.
• You want the debts discharged rather than repaid: only sequestration and rehabilitation does that, and only for pre-sequestration debts not arising from your own fraud.
• You want the least disruption to your life while you work through it: debt review, provided you can sustain the restructured instalment for its full term.

Sequestration is a court process with legal costs, a trustee, and consequences for your ability to hold certain positions. We are not going to put a rand figure on it here because it varies with the estate. Get a quote from an insolvency attorney before you treat it as an option.

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