A Comparison of Debt Review, Administration & Sequestration
To start off with, there is a vast difference between debt review, administration and sequestration. Although all three are legal processes that are made an order of the court, there are key factors that set the actual processes apart.
What is Administration?
Many people think that administration and debt review are similar, or even one and the same – but these are entirely different procedures altogether. Before we get into what debt counselling through debt review offers, let’s look at what administration is all about.
Key Factors of Administration
- Clients can only go under administration if their debt is less than R50,000.00;
- Because of the cap on debt, vehicles and bonds are excluded and don’t qualify for debt consolidation;
- Administration makes no concessions for debt write-offs;
- Your monthly debt repayments are reduced to an affordable amount;
- Debt repayment under administration takes much longer/is extended indefinitely (until debts are settled);
- Your total debt owed increases under administration due to high interest accrued;
- Payments to creditors are only distributed every 3 months (hence high interest that adds up);
- It can take up to 6 months for some creditors to start receiving payment, which further pushes up the amount of interest owed – and often some creditors have to wait for payment;
- Interest rates generally remain the same, but it could possibly be slightly reduced to approx. 15.5%;
- Administration is a magistrates’ court procedure;
- You’ll have a notice on your credit record until the administration order is set aside and you’ll be unable to apply for any additional credit;
- The administration order must be set aside by the court;
- High cost to the client – fees approx. 12.5%, plus VAT and distribution costs p/m, e.g. on a monthly repayment of R3,000.00 – R375 is deducted before the creditors are paid;
- An administrator is entitled to charge additional fees, e.g. for drawing up legal documents, telephone calls, general correspondence and services;
- A garnishing order is often placed on your salary, which means that employers are inadvertently notified;
- Unlike with debt review, you do not get a clearance certificate once you’re done with administration.
What is Sequestration?
Sequestration is a more extreme and permanent form of debt rehabilitation. It is rarely considered, unless under extenuating circumstances. It is also usually more an option to clients who fall in the very high-income bracket. This is due to the nature of the requirements. Let’s take a look at what sequestration entails. If your debts exceed your ability to repay it in a satisfactory manner - sequestration is an option.
Key Factors of Sequestration
- To qualify for sequestration, your assets (items of property regarded as having monetary value) must cover your debts;
- Sequestration is a High Court procedure, which is extremely costly;
- There are no guarantees that your application will be accepted as the court only grants sequestration if it is in the best interest of your creditors;
- If your creditors are not in agreement, the High Court will not accept your application;
- If sequestration is granted, your assets will be sold and your creditors will be paid a portion of the debt you owe – with the balance legally written off;
- All associated costs will be paid from your estate (which is bad for creditors);
- To recover funds, your creditors need to make a claim against your insolvent estate, or their claims will be written off;
- You effectively lose all your assets – and you have no control over the sales of your assets. None of the proceeds will be returned to you either;
- Your credit record will carry a notice of sequestration and you’ll be legally forbidden to get any credit until you are no longer under sequestration and/or your estate is rehabilitated;
- To be declared rehabilitated, you need to make an application to the High Court;
- In South Africa, it takes 10 years from the date of sequestration to be automatically rehabilitated. You may, however, approach the court prior to the end of this period to be declared rehabilitated – provided that stringent conditions are met.
What is Debt Review?
Debt review is the most flexible way to apply for debt consolidation. You will not have to wait a decade to have your name cleared (or pay extortionate fees in the process). The entire process is regulated by the NCR (National Credit Regulator). Let look at why most people opt for debt counselling through debt review as the most effective and fastest way to consolidate their debt.
Key Factors of Debt Review
- Unlike administration, there is no cap on the debt amount, which means all your debts can be included;
- Your debt counsellor will negotiate interest rates and you’ll most likely be granted a massive reduction. It is even possible to pay zero interest (although this is dealt with on a case-by-case basis);
- Your debt counsellor will send through proposed repayment amounts and negotiate these with your creditors;
- Your debt counsellor will work closely with you to calculate a restructured monthly repayment that keeps your budget in mind;
- Your debt counsellor will work out a repayment plan, which will include the period of repayment, so you’ll have a good idea of how long you’ll be under debt review for;
- Once negotiations are finalised, the debt review application will be made an order of the court, through the magistrates’ court, or a consent order will be issued by the National Consumer Tribunal (NCT) – both are legally binding;
- Debt review is affordable – you pay one fee that is included in your restructured monthly payment and the amount is capped. A small 5% aftercare fee of between R50 and R450 max per month applies;
- Payment to all your creditors will be done every month from the first month;
- Debt review payments will be distributed via a payment distribution agency, ensuring prompt monthly payments – whereas repayment is done by the attorney when under administration;
- The NCR (National Credit Regulator) and the National Credit Act regulates debt review – administration predates this act (which offers a lot of protection for the consumer);
- You’ll make your monthly debt review payment straight into the payment distribution agency’s account – so a garnishing order will not be placed on your salary and your financial situation will remain private;
- Unlike with administration where the administrator (attorney) will control your finances, debt review allows you to walk the path with your debt counsellor – and even restructure your payments to accommodate changes in your financial circumstances if needed;
- You’ll be listed as ‘under debt review’ at credit bureaus and you’ll be unable to apply for any additional credit;
- Once you’ve completed your debt review journey, the notice will be removed from ITC without any trace;
- Upon successful completion of your debt review journey, you’ll be issued a clearance certificate (along with paid-up letters).
Now that you’ve read a comprehensive comparison of the three main ways to settle your debts, you’ll see why opting for debt review is the best way to free yourself from financial hardship and over-indebtedness. Contact Sandton Debt Counselling for an obligation-free assessment. We’re ready to assist you on your journey to financial freedom!