Sequestration vs Debt Counselling
Two main debt relief options exist in South Africa for over-indebted consumers: debt counselling (debt review under the NCA) and sequestration (personal bankruptcy under the Insolvency Act). They are fundamentally different in who they benefit and what they cost.
Debt Counselling (Debt Review)
A formal process under the National Credit Act where a registered debt counsellor renegotiates your debt repayments into one affordable monthly instalment, and creditors are prevented from suing you.
When it applies: When you are over-indebted (income is insufficient to pay all obligations) but still have some income and want to protect your assets. Suitable for employees or those with regular income.
Law: National Credit Act 34 of 2005, sections 86–88.
Example: A nurse earning R18,000/month with R25,000 in monthly debt repayments enters debt review — repayments are restructured to R12,000/month over an extended period.
Sequestration (Personal Bankruptcy)
A court process that declares a person insolvent. Their assets (above a minimum threshold) are handed to a trustee who sells them to pay creditors. After rehabilitation, debts are extinguished.
When it applies: When your liabilities significantly exceed your assets and you cannot repay your debts at all. Often used when assets will cover a portion of debts (advantage to creditors required).
Law: Insolvency Act 24 of 1936; NCA (applies to consumer credit during sequestration).
Example: A businessman with R2 million in assets and R8 million in debts applies for voluntary sequestration.
Key Differences at a Glance
| Aspect | Debt Counselling (Debt Review) | Sequestration (Personal Bankruptcy) |
|---|
| Income requirement |
Requires regular income to make restructured payments |
No income requirement — assets (not income) are liquidated |
| Asset protection |
Your assets are protected — creditors cannot attach during review |
Most assets are surrendered to the trustee (some exemptions) |
| Duration |
Typically 3–5 years until clearance certificate issued |
Rehabilitation after 10 years (automatic) or 4 years (court-ordered) |
| Credit record |
Flagged as "under debt review" during process; cleared on exit |
Insolvent status remains until rehabilitation; severe credit impact |
| Home loan |
Mortgage payments often included and protected during review |
Home may be surrendered unless bond is paid up and excluded |
| Cost |
Debt counsellor fees (regulated under NCA); no court required for most cases |
Attorney fees, court costs, trustee fees — expensive process |
Frequently Asked Questions
Which is better for my credit record — debt review or sequestration in South Africa?
Debt review is better for your credit record long-term. You exit debt review with a clearance certificate and credit bureaus remove the flag. Sequestration leaves you as an unrehabilitated insolvent for up to 10 years.
Can I exit debt review early in South Africa?
Yes, if you settle all debts (except home loans) and are no longer over-indebted, you can apply to court for a termination order. Alternatively, settling all restructured debts automatically entitles you to a clearance certificate.
Can I apply for sequestration myself in South Africa?
Yes — this is called voluntary surrender. You must show that sequestration will be to the advantage of creditors (their claims will be partially satisfied). An attorney handles the application to the High Court.