Personal Bankruptcy in South Africa

What is a Voluntary Surrender or Personal Bankruptcy?

Definition

Voluntary Surrender also referred to as "filing for bankruptcy" or "going insolvent" is one of the most effective debt solutions currently available to South African consumers, as it allows an adult individual who's liabilities (debt) exceed the value of their assets, to apply to the High Court for an order declaring them insolvent.

In doing so, an individual or a couple married in community of property, will forfeit their estate (assets) for the benefit of their creditors and write off their remaining debt, subject to certain terms and conditions. This will allow them to start anew without any debt and enable them to rebuild their life.

Who may apply for an Sequestration Order?

The Insolvency Act stipulates that the following people may petition the High Court for the acceptance of the surrender of the estate in question:

An insolvent debtor;
The Executor of the estate of a deceased insolvent debtor;
The Trustee(s) of an insolvent debtor incapable of managing their own affairs;
All the members of a partnership, or their agent.

A creditor who has a liquidated claim against a debtor who has committed an act of insolvency, may also petition the Court for the sequestration of the estate of the debtor, but this will be discussed under Forced Sequestration Applications.

Couples married in community of property

If you are married in community of property (without an Antenuptial Contract), the application will require the consent of both spouses and will be launched in both your names.

You cannot apply for the voluntary surrender of your joint estate without your spouse's consent. If you cannot obtain their consent, you might have to file for divorce first. Do note however, that any creditor of the joint estate will be able to hold your spouse 100% accountable for any outstanding debts incurred by either one of you, while still instituting a claim against your insolvent estate, provided however, that the relevant creditor does recover more than what is owed to them.

We therefore advise client to rather sequestrate the joint estate together and then get a divorce thereafter if their relationship has reached that stage, as it also simplifies the settlement negotiations.

Advantages of an Sequestration Order

The main aim of a Sequestration Order is to liquidate the assets of the debtor in a orderly structured fashion in terms of the provisions of the Insolvency Act, 1936 and then to distribute the proceeds among the insolvent estate's creditors accordingly.

Most insolvents proceed to repurchase most of their assets, such as furniture, household content, tools or sometimes even vehicles back from appointed trustee at a reduced valuation price, payable interest free in monthly installments over a 6 to 24 month period.

In addition, it also offers the following advantages:

Once the process starts your property may no longer be sold by the sheriff;
Any civil action will be stayed until the appointment of your trustee;
An insolvent may follow any profession or occupation from which he/she has not been specifically excluded;
An insolvent may sue or may be sued in his own name without reference to the trustee of his estate in any matter relating to status or any right in so far as it does not affect his estate;
An insolvent may for his own benefit recover any pension to which he may be entitled for services rendered by him;
An insolvent may for his own benefit recover any compensation for any loss or damage which he may have suffered, whether before or after the sequestration of his estate, by reason of any defamation or personal injury;
Attorneys and Collection Agents of creditors have to deal with your Trustee and may no longer threaten you;
The Sheriff of the Court may not attach or sell your property on behalf of creditors;
It's easier to budget for your household and to plan financially for the future; and
The pressure and related stress to appease every creditor disappears.

This will enable to you will sleep better, be more relaxed, and will be able to concentrate better which will increase your ability to focus on your goals and plan for the future.

Disadvantages of a Sequestration Order

An Sequestration Order really only has temporary disadvantages which will disappear once rehabilitation occurs either on application to the High Court usually after 2 - 4 years, or automatically after 10 years:

You are not allowed to incur debt while insolvent;
The Sequestration Order will be listed on your credit profile;
Your credit rating will be impaired as a result of the listing;
You will not be able to obtain any credit facilities or loans for the duration of your insolvency;
You would need to transact in cash or via debit card;
You'll need to submit a monthly household budget to your trustee;
You have to keep your trustee informed of your residential and postal addresses.

How to apply for personal bankruptcy

The process involves an application in a prescribed form, which we prepare on behalf of our clients, made to the relevant High Court in the area where you reside, carry on business, or are employed. The application includes an affidavit made by you as the applicant, which must be accompanied by a statement of your financial affairs that include the following:

your residential address and name of your employer;
your occupation and gross income;
all deductions that are made from your income (such as medical aid contributions);
a list of assets and liabilities;
the details of any immovable property (such as a house) that is subject to a mortgage bond;
the details of any vehicles that are being financed;
a budget of your monthly expenses;
a complete list of your creditors, their addresses, the amounts due to them;
any security held by a creditor, and the value of the security;
whether a previous sequestration order has been granted before; and
details of your spouse and dependants.

If you are married in community of property, the application must be supported by your spouse and include all their details as well. Once the application and required documentation has been prepared, it will be submitted to the relevant High Court together with the required supporting documents, in order to be issued. The Registrar of the High Court will then provide a date on which the application will be heard.

The application will be heard by a Judge on the specified date. You will not be required to attend, but may do so if you want to. Usually if no creditors oppose the application, the order will usually be granted.

Effects of an Sequestration Order

Once granted, the Sequestration Order must be sent to the Master of the High Court. A Trustee will be appointed to take charge of the insolvent estate and to attend to the administration, by:

informing every creditor of the sequestration order;
realising the assets of the insolvent estate;
investigating the claims of creditors;
distributing the proceeds of the insolvent estate in terms of a Liquidation and Distribution Account.

While an order is in force, none of your creditors from before the court order may proceed with legal steps against you, except in limited circumstances, for example, where an act of fraud was involved.

Costs of a Application for Voluntary Surrender

Apart from the costs of the application itself, which we bill according to the prescribed tariffs of the High Court, a deposit will be required to cover the initial disbursements.

If you wish to pursue this option, contact us for a free assessment of your financial circumstances. We will email you a copy of our analysis at no charge, together with a detailed no-obligation quotation in the event that you wish to make use of our further services.

For your free assessment simply send an email to info@gmilaw.co.za

Phone us on 087 057 1790 during office hours.

_Copyright_{© 2023 Rohan Lamprecht. Disclaimer: The information in this article is of a general nature for educational purposes only, relevant to the publishing date. Any opinions expressed are solely those of the author and do not necessarily reflect the views or opinions of Grobler Malopi Inc. The content is not intended to constitute professional or legal advice, and you are encouraged to call and consult with our attorneys to discuss your specific situation before making any decisions. Grobler Malope Inc - 087 057 1790 -}_{info@gmilaw.co.za}