Sequestration is the process you go through when you are no longer able to pay your debts. It involves the courts, lawyers, SARS and all the people you owe. When you go through the process, a court declares you to be insolvent then all of your property is sold. The money raised from the sale is then paid to your creditors.
Sequestration has quite a few negative effects, this post highlights just four of them:
1. You lose all your property as part of the sequestration process.
This applies to anything you own. It also applies to anything that you may gain while under sequestration. There may be exceptions to this rule. In general, all your property is taken away and used to pay off all the people or companies you owe.
2. You lose your legal status.
This means that you will not be able to enter into contracts without the permission of an individual known as a trustee. The trustee is appointed by the people you owe. It is the responsibility of the trustee to distribute your property. The trustee may allow you to enter into certain contracts such as employment contracts but they will most likely decline requests to enter into other contracts. To understand the impact of this rule think of losing other contracts you have like your Dstv or phone contract.
3. Being declared insolvent disqualifies you from holding a number of offices
- a member of parliament, the National Council of Provinces, or a provincial legislature;
- a director of a company or managing member of a closed corporation (without the permission of the court);
- a board member of the Land Bank;
- an attorney or estate agent with a Fidelity Fund Certificate—unless he can show that he is still fit and proper.
4. The sequestration may last from 1 to 5 years.
To come out of this state requires you to go through a process known as rehabilitation. The fact that you went through rehabilitation may remain on your credit record for an additional 5 years.