Voluntary vs. Compulsory Sequestration

Have you ever considered undergoing voluntary sequestration to write off overwhelming debt? Do you face the threat of compulsory (involuntary) sequestration and want to know what you’re up against?

Sequestration is a legal process in which a consumer is declared bankrupt. During the process, 80% of their debt is written off, and their assets are auctioned to recover the remaining 20%. This means that at least 20 cents must be paid for every Rand to recover your debt. The Insolvency Act calls this the Minimum Benefit.

There are two types of sequestration: voluntary and compulsory, or involuntary. In voluntary sequestration, you approach the court and declare yourself bankrupt, whereas in involuntary sequestration, a creditor approaches the court to declare you bankrupt.

Knowing the difference between voluntary and involuntary sequestration is crucial when deciding what next steps you should take. In this post, Credit Rehab discusses the key differences between both sorts of sequestration.

Differences Between Compulsory and Voluntary Sequestration

Let’s discuss the variants in causes, happenings, and outcomes of compulsory versus voluntary sequestration.

Voluntary Sequestration

Under voluntary sequestration, the debtor (you) applies to the court to be sequestrated to obtain relief from their overwhelming debt. Effectively, they declare themselves bankrupt to wipe off most of their debt (around 80%).

You will apply to the High Court, where you’ll have to prove you’re factually insolvent. This means that your liabilities far exceed the value of your assets. In addition, you’ll have to demonstrate that your sequestration will benefit your creditor.

Your estate or assets will cover the sequestration costs, including your legal fees. Your assets will be handed over to a trustee and liquidated to cover at least 20% of what you owe. The remaining 80% of your debt will be written off. No one will be allowed to sue you.

If you must be sequestrated, do it voluntarily. This way, you’ll have more control over the process.

Involuntary Sequestration

Involuntary sequestration is when your creditors, not you, apply to the court to recover their debts. In their application, they must prove that you’ve committed an act of insolvency or are insolvent.

Acts of insolvency include:

• Leaving South Africa or your domicile address without leaving a forwarding address and ceasing payment to creditors.
• Written acknowledgement of the total amount of debt and that you cannot pay the debt.
• Written request to a creditor requesting that your debt be written off because of your inability to pay.
• Failure to satisfy a judgment against you because you couldn’t pay.
• Having sold assets to pay off specific debts

Your creditor must show that it would be to their advantage.

Your costs would be covered by the creditor, but can be recovered from your estate and assets. Mostly, involuntary sequestration has the outcomes of voluntary sequestration; however, during involuntary sequestration, creditors may display hostility.

Let Credit Rehab Assist You

Let Credit Rehab’s attorneys defend you during involuntary sequestration or help you apply to the High Court for voluntary sequestration. Our experts have years of experience helping South Africans break free from their debt and regain their financial agency – contact us today.