Debt Counseling vs Administration/Sequestration

With the new year start we have found that consumers in smaller areas along the coast of the Garden Route has a misleading conception about Debt Review better known as Debt Counselling.

In this article we will focus on the difference between Debt Counseling, Administration and Sequestration.

Let's start by what these 3 options has in common. In all three processes you have to much Debt that you are unable to pay and you seek legal advice to help you with Debt.

In the cities there are less confusion on what Debt counseling really is, but we have found in towns like Mosselbay, Riversdale, Oudtshoorn, Knysna and even George that most consumers confuse Debt Counseling with Administration or Consolidation of your Debt.

Here are a few facts on this:

1. You may not qualify for debt counselling - Anyone can apply for debt counselling, but not everyone will qualify.To qualify for debt counselling, you need to be over-indebted as defined by the NCA – that is: '' you are unable to meet all your financial obligations in a timely manner''. This is determined by a debt counsellor and basically means that you can’t repay your minimum monthly installments.

2. There are disadvantages to both administration and sequestration.

For example, you may apply to have your debt placed under administration only if your total debt is less than R50 000, and the administration charges are high at 12.5 percent of every installment paid. And when you go into sequestration, you lose your assets and have to obtain permission from the court-appointed trustee if you want to borrow money.

3. Rehabilitation - Debt counselling not only helps the consumer to pay back the Debt through the Debt Review process, but also advises and teaches the consumer how to work according to a budget and start saving. Debt Counselling rehabilitates the consumer so that when the consumer gets out of Debt Review he/she will be able to manage their funds better. This factor is not offered by Administration or Sequestration.

Where does the confusion come in between Debt Counselling & Debt Consolidation?

The consumer sees an advert 'Pay back your debt in one installment'. Now some of the companies use this one sentence to their advantage for lending you money to pay off your debt and then you as consumer pays them the loan back in one installment. THIS IS NOT ADVISED. The Debt Review process is to Help consumers pay off their debt and not to give them more debt to pay which they can't afford. If you are on Debt review the Debt Counselor will negotiate with your creditors on lower installments that you will be able to pay BUT Debt Counselors DO NOT GIVE LOANS. Debt Counsellors will restructure your payments, and yes you will pay one installment but the installment gets paid to a Payment distribution agent that will distribute the installment to all the creditors as per the restructured payment plan arranged with them.. The payment distribution agent and debt counsellor will not charge interest in fact the debt counselor will try to negotiate a lower interest rate on your accounts. Yes, there is fees that needs to be paid to the Debt Counselor each month as a after care fee for the service. ( please see the fees & charges for debt review)

In short Administration will give you one installment but interest will be charged on top of the installment and your Debt needs to be R50 000 and more. With Sequestration you will loose all your assets. With Debt Review you will pay lower installments to your creditors but won't loose your assets.

If you have more questions or need help with debt - Call us 082 369 2651

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