Sequestration vs. Debt Review: Which Is Right for You?

You're Drowning in Debt. What Are Your Options?

South Africa has two main formal legal mechanisms to help people who cannot repay their debts: debt review and voluntary sequestration. They sound similar but are fundamentally different processes with different consequences.

Choosing the wrong one can cost you years and money. This guide explains the difference clearly.

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Option 1: Debt Review (Debt Counselling)

Introduced by the National Credit Act (NCA), debt review is designed to help over-indebted consumers by restructuring their debt into a single, reduced monthly payment they can actually afford.

How It Works

1. You apply to a registered Debt Counsellor (listed with the National Credit Regulator).
2. The counsellor assesses your income vs. your debt obligations.
3. If you are officially declared "over-indebted," they propose a restructured repayment plan to your creditors.
4. A magistrate's court issues a debt rearrangement order.
5. You make one consolidated payment per month to a Payment Distribution Agency (PDA), which distributes the money to your creditors.
6. While under debt review, creditors cannot take legal action against you.

Pros of Debt Review

✅ You keep your assets (your house, car, etc.) while repaying. ✅ Creditors cannot harass, sue, or repossess while you are compliant. ✅ Your payment is reduced to an affordable amount. ✅ Interest rates may be negotiated down.

Cons of Debt Review

❌ You cannot take on any new credit while under debt review. ❌ It typically takes 5–7 years or longer to complete. ❌ Your name is listed on the credit bureau as "under debt review" for the duration. ❌ If you miss payments, protection falls away and creditors can proceed immediately. ❌ Debt counsellors charge fees (regulated by the NCR).

When Does Debt Review End?

When you have repaid all your debt (except for a home loan which continues separately), the debt counsellor issues a Section 71 Clearance Certificate, which is sent to all credit bureaux to clear your status.

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Option 2: Voluntary Sequestration

Sequestration is a formal insolvency process where your estate is surrendered to the High Court and an appointed Trustee takes over and sells your assets to pay your creditors.

It sounds drastic—because it is. But in certain situations, it is the fastest and most practical way out of unmanageable debt.

How It Works

1. You apply to the High Court to declare your estate insolvent (you owe more than you own).
2. The court appoints a Trustee (appointed by the Master of the High Court).
3. The Trustee takes control of your estate, sells your non-exempt assets, and distributes the proceeds to creditors.
4. After a period of time (minimum 4 months with no opposition, but often longer), you may apply for rehabilitation, which wipes the slate clean.

Pros of Sequestration

✅ Once sequestrated, you are protected from all legal proceedings by creditors. ✅ After rehabilitation, your debt is fully extinguished—creditors cannot come after you for old debts. ✅ Rehabilitation can be applied for after 10 years automatically, or as early as 4 months in certain circumstances. ✅ Suitable for people with very large debts and no realistic ability to repay.

Cons of Sequestration

❌ You lose your assets—your home, vehicle, savings (with limited exceptions). ❌ The process is expensive (attorney fees, trustee fees, and a court process). ❌ You are listed as insolvent, which impacts your credit record significantly. ❌ Certain professions (attorneys, accountants, company directors) prohibit insolvents from practising. ❌ There must be advantage to creditors—if there is nothing to distribute, the court will not grant sequestration.

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Head-to-Head Comparison

| Factor | Debt Review | Sequestration | |---|---|---| | Who administers it? | Debt Counsellor | High Court + Trustee | | Do you keep your assets? | Yes | No (mostly) | | How long does it take? | 5–7+ years | Minimum 4 months to sequestration; rehabilitation varies | | Credit record impact | Listed under debt review | Listed as insolvent | | Can you get new credit? | No, during the process | No, until rehabilitated | | Debt extinguished? | No—you pay it all back | Yes—after rehabilitation | | Court involvement? | Magistrate's Court consent | High Court — formal legal process | | Best for? | People with manageable income who need breathing room | People with overwhelming debt, no real ability to repay, and minimal assets to lose |

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Which One Is Right for You?

Choose Debt Review If:

• You have a steady income but not enough to cover all monthly obligations.
• You want to protect your assets (especially your home).
• Your debts are large but not completely unmanageable over a longer period.
• You can commit to a 5+ year repayment plan.

Choose Sequestration If:

• Your debts vastly exceed your assets and income.
• You have no realistic prospect of ever repaying.
• You are already facing multiple judgments or bank accounts being seized.
• You understand you will lose most of your assets but want a clean start faster.

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What About Administration Orders?

There is a third, lesser-known option for debts under R50,000: applying to a Magistrate's Court for an Administration Order. An administrator is appointed to collect and distribute your payments. However, this process has significant limitations and is generally not recommended unless your total debt is very small.

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Key Takeaways

• Debt review restructures your payments—you keep your assets but pay everything back over many years.
• Sequestration surrenders your estate—you lose assets but can be discharged from debt entirely.
• Neither option should be entered into lightly or without legal and financial advice.
• Both have serious credit bureau consequences—understand what you're signing up for.

Not sure which route is right for your situation? A debt law attorney or registered debt counsellor on LekkerLaw can give you advice specific to your circumstances.