Sequestration Basics: How Does Bankruptcy Work

Individuals facing insurmountable debt have legal options to relieve their financial burden, with sequestration and bankruptcy among the most notable. Understanding these processes is essential for anyone considering them to solve financial distress. This article provides a basic overview of sequestration and bankruptcy, highlighting their key aspects and how they work.

What is Sequestration?
Sequestration is the legal process by which a court declares a debtor insolvent, leading to appointing a trustee to manage and distribute the debtor’s assets among creditors. In South Africa, sequestration can be voluntary or compulsory.
Voluntary Sequestration
Voluntary sequestration occurs when a debtor, recognising their inability to pay off debts, applies to the court to be declared insolvent. To succeed, the debtor must prove that they are insolvent and that sequestration will benefit creditors, typically by showing that the sale of their assets will yield sufficient funds to pay off a portion of the debt.
Compulsory Sequestration
Compulsory sequestration happens when creditors apply to the court to have a debtor declared insolvent. This usually occurs after the debtor has failed to meet their financial obligations, and the creditors believe that sequestration will ensure fair and orderly distribution of the debtor’s assets.


The Sequestration Process

  • Application to Court: The debtor or creditor files an application for sequestration with the High Court. For voluntary sequestration, this involves submitting a detailed statement of the debtor’s financial affairs.
  • Provisional Order: If the court is satisfied with the application, it issues a provisional sequestration order. This temporary measure protects the debtor’s estate from individual creditor claims while the matter is further investigated.
  • Final Order: After a provisional order is granted, a return date is set for a hearing where interested parties can present their cases. If the court is convinced that sequestration is appropriate, it issues a final sequestration order.
  • Appointment of Trustee: Once a final order is granted, a trustee is appointed to take control of the debtor’s estate. The trustee’s role is to sell the debtor’s assets and distribute the proceeds to creditors according to legal priority.
  • Rehabilitation: After a certain period, the debtor can apply for rehabilitation, which restores their legal status and discharges any remaining debts. Rehabilitation typically takes four years but can be expedited under certain circumstances.

Advantages of Sequestration

  • Debt Relief: Sequestration provides immediate relief from creditors’ claims and legal actions.
  • Fresh Start: After rehabilitation, the debtor can start anew without the burden of past debts.
  • Orderly Distribution: Creditors receive a fair distribution of the debtor’s assets, ensuring transparency and equity.

Disadvantages of Sequestration

  • Asset Loss: The debtor loses control over their assets, which are sold to pay creditors.
  • Credit Record Impact: Sequestration negatively affects the debtor’s credit record, making it difficult to obtain credit in the future.
  • Cost: The process involves legal and administrative expenses, which can be significant.

Contact Legal Rights for Details
Contact us today for information about our sequestration and bankruptcy services.

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