Without prejudice…

Due to the effects of NCA, changes in the market conditions and Increased interest rates, debtors seem to find that insolvency is the only way out. Although the option is viable in terms of running away from your debts and especially your creditors, there is at least a 10 year waiting period for rehabilitation. In the event that creditors failed to prove claims, this waiting period may be reduced to 5 years.

Having said that, it is clear that there are a number of entities out there especially in the Gauteng province and surrounding areas who chase debtors to apply for sequestration (Need I say why?). These entities approach the debtors in distress (Where properties are pending a sale in execution by the sheriff) and lead them to believe that applying for a sequestration of their estate is the best option. They lead the debtor to believe that they will stay in their properties without being evicted and that they are no longer responsible for their debts.

This is so far from the truth, that when the debtor is finally sequestrated, creditors insist on finalising these estates as soon as possible. In short notice is given to the debtor to vacate the premises within 30 days (No different to that of a sale in execution).

These entities benefit from receiving payments in respect of applicant costs and who knows what else!!! In essence they need to show that in bringing such application there will be an advantage to other creditors (We call them the concurrent creditors). Unfortunately the application is manipulated in such a way that all asset values are inflated to prove that there will be an advantage. Again far from the truth as most applications finalised and confirmed by the various high courts show there was no advantage. We must mention that there are only a few of these entities that practice purely for personal gain. Unfortunately they represent most of the applications for sequestration.

What some of the debtors may not know is that the costs in finalising an estate far exceed that of the costs incurred when recovering debt by way of legal action or foreclosure. What we are referring to are the specific scenarios mentioned above. The operation in bringing these applications include what we call the trio (Attorney (Runner), Trustee and Auctioneer). Again in the interest of making money at the expense of the debtor and the secured creditors.

To end, the number of bad debtors and insolvencies are on the incline. Despite predicted rate cuts, these numbers will not decrease until 2010 if we are lucky. We do not believe insolvency is the best option unless there is a benefit to other creditors. As a debtor, if you have lent from a financial institution despite the effects of NCA and certain terms of contract, you are obligated to pay your debts. The excuse that “I failed to sign this or there was a defect on the contract etc” is lame and not acceptable. You took the funds / money and you will pay those debts.

Looking at the bright side of things where there is a downturn there is always a upswing. Just wait for it, things will get better.