Sequestration vs Debt Review: Which Option is Right for You?

When debt becomes unmanageable, two legal options are available to South Africans seeking relief: debt review and sequestration. Both provide protection from creditors and a path out of financial distress, but they work in fundamentally different ways and suit different circumstances. Debt review restructures what you owe to be paid off over a prolonged period of time, but keeps your assets intact. Sequestration writes off most of your debt, at the cost of selling your assets and being declared insolvent.

What is Debt Review?

Debt review is a formal debt relief process introduced by the National Credit Act 34 of 2005 (NCA). It is designed for consumers who are over-indebted but still have a regular income and want to repay what they owe under more manageable terms.

Key features of debt review

• Your assets, including your home and vehicle, are protected from repossession while you comply with the process
• Creditors may not take legal action against you once the process is underway
• You cannot enter into new credit agreements during the process
• A debt review flag is placed on your credit record and is removed once the clearance certificate is issued
• The process is regulated by the National Credit Regulator (NCR)

What is Sequestration?

Sequestration is the legal process of being declared insolvent. It is governed by the Insolvency Act 24 of 1936 and applies only to natural persons (individuals), not companies.

There are two forms of sequestration in South Africa:

1. Voluntary sequestration: You apply to the High Court to surrender your own estate. To succeed, you must show that the sequestration will be to the advantage of your creditors.
2. Compulsory sequestration: A creditor applies to the High Court to have your estate sequestrated because you cannot pay your debts.

What happens after sequestration

Once the court grants the order, the Master of the High Court appoints a trustee to take control of your estate. The trustee sells your assets and distributes the proceeds to creditors according to their ranking under the Insolvency Act. Once your assets are sold and creditors receive their minimum dividend, the remaining balance of unsecured debt is effectively written off. Creditors cannot pursue you for the rest of the money.

You remain insolvent until you are rehabilitated, and you can apply for rehabilitation after four years (or sooner in certain circumstances). If you do not apply, automatic rehabilitation occurs after ten years. 

Side-by-Side Comparison

	Debt Review	Sequestration
Court	Magistrate’s Court	High Court
Your assets	Protected	Sold by the trustee
Debt outcome	Paid in full over time	Up to 80% written off
Income required	Yes	Not required
Credit during process	Not permitted	Only with the trustee’s written consent
End of process	Clearance certificate from a debt counsellor	Rehabilitation order from the court
Credit record impact	Flag removed after clearance	Rehabilitation status remains for 5 years
Can you be a company director?	Yes	No, not until rehabilitated
Pension protected?	Yes	Yes

Which Option is Right for You?

The right choice depends on your specific financial position, income, and long-term goals. Neither option suits every situation.

Debt review is likely the better fit if you:

• Have a stable income but cannot afford your current monthly debt repayments
• Want to keep your home, vehicle, or other assets
• Are willing to repay your debt in full over an extended period
• Hold a directorship or professional position that you cannot afford to lose
• Are at an early stage of financial difficulty and have not yet defaulted extensively

Sequestration may be more appropriate if you:

• Are genuinely insolvent with no realistic prospect of repaying your debts
• Have significant assets that meet the advantage-to-creditors requirement
• Need rapid relief from an overwhelming debt burden that cannot be restructured
• Are already in default and facing legal actions from creditors
• Can tolerate the restrictions on credit and certain business activities during the insolvency period

One important note: you can apply for sequestration even if you are currently under debt review, but you cannot apply for debt review once you have been sequestrated.

Get the Right Advice Before You Decide

Both debt review and sequestration offer genuine legal protection and a route to financial recovery. Before committing to either process, it is essential to obtain proper legal advice from an experienced attorney. The team at Cawood Attorneys has extensive experience in sequestration and insolvency matters across South Africa. Contact us to discuss your situation and find out which option genuinely serves your best interests.