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What is an Administration Order?

When someone is in financial trouble and does not qualify for debt counseling, the only option left to them is the administration order route. It applies to persons who have a total debt of less than 

R 50,000. The administrator approaches all of the creditors with a debt repayment plan or proposal after the administrator has reviewed the client’s income and expenses. Determination must be made for the client to still have the means to live. An application is made to court, an administrator is appointed and the administrator takes over the management of the person’s debt. An Emolument Attachment Order is granted alongside the Administration Order so as to garnishee the client’s salary/ wage for the monthly disbursement amount. The administrator will receive the funds from the employer monthly and will distribute the funds to the creditors on a three monthly basis. There are certain costs by which the government controls administrator costs, however the administrator may charge additional fees to cover expenses. The administrator must resubmit a distribution statement to the court every three months. The distribution statement will detail the creditors, the individual distribution amount and the balance of the accounts with each creditor

What are the issues?

The administrator may not always have the most recent creditor updates, which means that the client may think that they owe more, when in fact they owe less. The law states that the initial creditors that were presented in the original application must be paid up before the addition of new creditors to the order. This prevents the original distribution amount being spread too thinly between the initial creditors and the new creditors. However, this is not the case and extends the debt recovery process. The payments to creditors are not made regularly and so creditors may issue an Emolument Attachment Order of their own for the debt even though the debt is under administration. Administrators may change but neither the client nor the creditors may have been informed. Although initially cheaper than debt counseling, the cost may escalate as the administrators claim expenses. 

There is no controlling body for administrators

Debt Consolidation Loan

A major appeal of consolidation loans is convenience. Instead of paying 20 different creditors who are charging different rates at different times of the month, you take out one big loan and pay off all those accounts. Then you make a single payment on that loan once a month. But ease doesn't automatically translate to savings.

Before you sign on the dotted line, be sure that the costs of the new, bundled loan will truly be less than what you're already paying various creditors. For many consolidation-loan candidates, their current credit woes mean they won't get the lowest-available interest rate. Plus, when there is nothing to secure the loan (such as your home), expect the lender to bump up the rate.

Calculate interest and fees on all your existing accounts to determine the total of the payments you now make. Then compare those amounts with the consolidation loan numbers to make sure it truly is a better choice.

Debt Counseling Versus Loan Consolidation

Debt Counseling	Loan Consolidation
Using your own money to settle debt	Credit provider giving you a loan to settle your debt
Debt counselor may reduce the interest on your account to solve the debt as quick as possible	The credit provider is more interested to settle the debt on high interest
The debt under debt review will be shorter	The consolidation loan will be a new loan as you will be paying interest on interest and the term will be longer
The Debt Counselor uses the Induplum rule to solve the debt	The credit providers do not liaise the credit providers nor do they bring in the induplum rule
You will be listed on the credit bureaus but when the debt is settled the debt counselor will provide you with a clearance certificate	You won’t be listed but puts you in danger for more loans
Debt counselor will assist you with reckless credit	The credit provider will just settle the debt and not worry about the reckless loan

Induplum Rule

Despite any provision of the common law or a credit agreement to the contrary, the amounts contemplated in s 101(1)(b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs.

Once the amounts referred to in s101(1)(b) – (g) that accrue during the period of default, whether or not they are paid, equal in aggregate the unpaid balance of the principal debt at the time the default occurs, no further charges may be levied.

Section 101 – Interest, initiation fee, service fee, credit insurance, default administration charges, and collection costs.

Example

When a consumer takes a loan of R10,000  from a credit provider and defaults when the balance is R8000.00(default),  interest and costs added to the account cannot be more than R16000.

Sequestration

Sequestration is normally seen as a last resort option for individuals who have too much debt and have exhausted all other options. In this article we explain sequestration mainly because we receive many questions on this but before we do this we want to point out that the National Credit Act makes provision for debt rescheduling and this should always be considered before sequestration. Sequestration could be an option if you have substantial debt and you have no means to repay this and it is unlikely that you will obtain income to repay the debt in the future.

What is a sequestration order?

A sequestration order places an insolvent persons estate in the hands of a trustee, who must sell the assets and distribute the cash among the creditors. The creditors or the debtor may apply for the sequestration order. If a compulsory sequestration order (in which a creditor has applied to the court) is made against you, you will be given an opportunity to show cause why your estate should not be sequestrated. A sequestration order is not granted automatically.

Voluntary sequestration

Although you can voluntarily surrender your estate by applying for a sequestration order against yourself, you cannot do so simply to avoid payment of debt. There are costs associated with sequestration and your creditors will have to pay them out of your insolvent estate. If your assets are too small to cover the costs and bring in at least some money to the creditors it will not be worth it.

You must apply for a sequestration order and it will not necessarily be granted. It depends on whether or not you own assets that can be sold to repay the creditors. The effects of a sequestration order are that all your debts of whatsoever nature are expunged and you can start life off on a clean slate.

The disadvantages of sequestration are that you cannot apply for your rehabilitation (as a general rule) until the lapse of 4 years unless the Master of the Supreme Court has recommended such earlier rehabilitation. If you take no steps to apply for your rehabilitation for 10 years after your sequestration you will be rehabilitated automatically.

As an unrehabilitated insolvent, it is unlawful to incur credit (without your trustee`s written consent) and you are obliged to advise all your creditors that you are an unrehabilitated insolvent. This might have an effect on your ability to open a bank account or the use of most debt related products.

Acts of insolvency

Acts of insolvency that would entitle a creditor to apply for sequestration include the following:

• A debtor leaving South Africa or moving to another address with the intent to evade or delay the payment of debts;
• Failure of a debtor to satisfy a court judgment;
• Written notice by a debtor informing a creditor of the inability to pay a debt;
• The disposal or removal of property by a debtor that has the effect of prejudicing creditors or preferring one above the other;
• If a debtor makes or offers to make an arrangement with one of the creditors in order to be released wholly or partly from debts.