For people drowning in debt, sequestration can sound like an escape. It is a legal process with real consequences, and it is not suitable for everyone.
Here is what sequestration means, so you can weigh it honestly.
What is sequestration?
Under the Insolvency Act, a court can place a person’s estate under sequestration. A trustee takes control of your assets, sells what can be sold and distributes the money among creditors.
Debts that remain after the sale are not automatically wiped out until you are rehabilitated.
What are the two types?
| Type | Who starts it | Key requirement |
|---|---|---|
| Voluntary surrender | You | You must show it will benefit creditors, and follow the notice process |
| Compulsory sequestration | A creditor | The creditor must show you are insolvent or have committed an act of insolvency |
Voluntary surrender is not simply a way out of debt. The court must be satisfied that it will benefit creditors, which means there must be enough assets to pay the costs and give creditors some return.
What are the consequences?
- You lose control of most assets, which pass to the trustee.
- Some items are protected, such as basic household goods and tools, but not everything.
- You cannot take credit without disclosing your status.
- Your insolvency is public.
- It can affect work, for example in some professions or as a company director.
Do not hide assets or transfer them to family beforehand. It can be a criminal offence and may lead to the order being challenged.
What does it cost?
Legal fees, court costs and trustee costs are paid from the estate. In a voluntary case you need enough money or assets to cover them.
Because the costs are high, it is usually not realistic for people with small debts or few assets.
How long does it last?
You can apply for rehabilitation, a court order that ends its effects. The earliest you can usually apply is a year after the order, and the court may grant it if you meet the conditions.
Credit bureaus may keep the order on record for up to five years, or until you are rehabilitated. Ask an attorney how this applies to your case.
What should you try first? 4 alternatives
| Option | When it fits |
|---|---|
| Talk to creditors | A few debts and some income |
| Debt review | Several debts and steady income |
| Administration order | Total debts under R50,000 and steady income |
| Debt consolidation | When it lowers your cost and you can repay |
Our guide to what to do when you cannot pay your debts sets out a step-by-step plan.
Where can you get help?
Speak to an attorney who handles insolvency, or to Legal Aid South Africa or a law clinic if you cannot afford one. For debt counselling, check registered counsellors on the NCR website.
When does sequestration even make sense? A worked comparison
Here is a hypothetical person with R120,000 in unsecured debt, a take-home income of R12,000 and almost no assets. These are the options, in broad terms.
| Option | What happens | Why it may or may not fit |
|---|---|---|
| Talk to creditors | Ask for lower payments or more time | Cheapest, if creditors agree |
| Debt review | A counsellor restructures all debts into one payment | Fits if income is steady, no ceiling on debts |
| Administration order | Not available, total debts are over R50,000 | Does not apply |
| Sequestration | Court declares insolvency | Costly, and the estate must have enough assets to cover costs |
For this person, debt review is usually more realistic than sequestration, because the estate would not cover the costs and creditors would receive little.
Sequestration is for people whose debts are so far beyond their means that no plan could work, and who have something for the process to benefit.
Does your estate pass the “benefit to creditors” test?
A voluntary surrender needs a real benefit to creditors. Here is a hypothetical list of assets.
| Asset | Value | Owed on it | Left for creditors |
|---|---|---|---|
| Car | R60,000 | R70,000 | R0 |
| Furniture | R15,000 | R0 | R15,000 |
| Savings | R2,000 | R0 | R2,000 |
| Total available | about R17,000 |
If legal and trustee costs would eat most of R17,000, creditors get little, and the court may refuse. Listing your assets and what you owe on each is the first step in any conversation with an attorney.
An asset with no equity, such as the car in the example, does not help creditors.
What does the voluntary surrender process look like?
The steps vary by case, but they generally include:
- Notice of the intention to surrender is published, and creditors are informed.
- A statement of your affairs lists your assets, debts and income.
- The court hears the application and decides whether to grant the order.
- A trustee is appointed and takes control of the estate.
- A meeting of creditors is held, and claims are proved.
- The trustee sells assets and pays creditors from the proceeds.
Throughout, you must be honest and cooperate. Hiding assets can end in criminal charges and a refusal of rehabilitation.
What should you ask an attorney before you decide?
Come with questions, and ask for the answers in writing:
- What will it cost in total, and where does the money come from?
- Which of my assets will I keep, and which will I lose?
- What happens to a car or home that I am paying off?
- How will it affect my job or my plans for a company directorship?
- What are the alternatives for my situation, and why not use them?
Bring your last three payslips, your bank statements, a list of all debts and a list of your assets. Our guide to what to do when you cannot pay your debts helps you collect them.
Sequestration is a serious step, and the best decision is usually made with a full picture.
What should you avoid while you are considering sequestration?
A few actions can damage your position, whatever you finally decide:
- Transferring assets to family or friends. It can be challenged and may be a criminal offence.
- Paying one creditor in preference to the others without advice. Some payments can be reversed later.
- Taking new loans without disclosing your situation.
- Ignoring court papers. A default order can be granted if you do not respond.
Speak to an attorney before you make large payments or transfers. If you are thinking about sequestration, treat the time before you decide as part of the process, and keep honest records of everything you own and owe.
Frequently asked questions
Can I keep my home or car?
Usually not without arrangements. Assets pass to the trustee, though some exceptions apply. Get legal advice.
Is it the same as debt review?
No. Debt review restructures your debts through a debt counsellor. Sequestration declares you insolvent.
Will creditors still call me?
Creditors must claim through the trustee. Keep records of any contact.
Does it clear all my debts?
Not automatically. Rehabilitation has its own process and conditions.
Does sequestration affect my spouse?
It can, depending on your marital regime and the property you share. Ask an attorney how it applies to you.
Can I apply for sequestration if I owe very little?
The estate must have enough assets to pay the costs and benefit creditors, so it is rarely suitable for small debts. See the alternatives above.
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