As a result of high inflation, more and more South Africans are finding themselves with insurmountable debt. If you’re deeply in debt, filing for bankruptcy could allow you to rebuild your financial life. However, this is something to consider only after you’ve exhausted all other options.

Here’s what you should know about filing for bankruptcy in South Africa.

What does it mean to declare bankruptcy?

Filing for bankruptcy involves petitioning the court to accept surrender of your estate for the benefit of your creditors. This process is also known as voluntary sequestration.

The courts will only approve this process if they determine it’s in the best interests of your creditors. In practice, this means that your creditors will receive a minimum of 10 cents per rand that you owe once your assets are distributed among them.

Filing for bankruptcy in South Africa

In South Africa, you have to take the following steps to file for bankruptcy:

• apply to the High Court for voluntary sequestration and, in an affidavit, explain your present financial situation and what led to it; an attorney can help you complete these steps
• publish a declaration that you’re applying for voluntary sequestration, for example in a newspaper
• use registered mail to let your creditors know you’ve filed for voluntary sequestration.

Once you’ve filed an insolvency claim, an appraiser or valuator will assess your assets, including physical assets, bank accounts, and any money owed to you.

If the total value of your assets is inadequate for the payment of the minimum 10 percent of what you owe to your creditors, the application will be rejected. However, cash or asset donations from family and friends may be used to supplement the value of your estate in order to qualify for insolvency.

If the claim is approved, trustees appointed by the court become responsible for distributing your assets fairly among your creditors.

Rehabilitation

After a period of 10 years, you’ll automatically be considered “rehabilitated”, meaning you’ll be cleared of the legal implications of bankruptcy and you’ll be free to trade and contract again.

You can also apply for rehabilitation earlier than this – 12 months after the trustees’ first account is confirmed. If you were convicted of fraud related to insolvency, however, you can apply for rehabilitation only after five years.

Pros of filing for bankruptcy

Before filing for bankruptcy as a debt solution, you should consider the pros and cons.

Advantages are that:

• filing for bankruptcy is the only debt remedy that can relieve you of up to 80 percent of your debt fairly quickly; other debt repayment programs can take upwards of 6 years
• if you don’t have any debt that will survive bankruptcy proceedings – such as a mortgage – this is the quickest way to get rid of debt
• once you’re declared insolvent, creditors are no longer able to pursue you directly for payment.

Cons of filing for bankruptcy

Disadvantages are that:

• you may lose your assets, other than certain assets you can show are necessary for your work
• filing for bankruptcy will tarnish your credit rating for up to 10 years, making it difficult or very expensive to get traditional loans
• some types of debt, like home and car loans, won’t simply go away; filing for bankruptcy will only eliminates your personal liability for secured debt, and won’t erase the creditor’s security interest in the asset.
• you may not be a director in a company until the courts declare that you’ve been rehabilitated.

If you need cash to tide you over

Before filing for bankruptcy, of if you need fast access to cash but have a tarnished credit rating, you can consider using a valuable asset you own (such as a luxury watch, an artwork or a paid-up vehicle) to secure a loan with Lamna.

Once you’ve repaid the loan, the asset will be returned to you. The process is quick, efficient and confidential.

For more information about using an asset to secure a short-term loan, contact us on 086 111 2866 or simply complete and submit our online application form.