When debt becomes unmanageable, South Africans generally have two major legal routes available: debt review (debt counselling) and sequestration (bankruptcy). While both offer a way out of overwhelming debt, they are governed by different legislation, follow entirely different processes, and lead to very different outcomes. Choosing the wrong option can cost you your assets, your credit record, and years of financial freedom.
What Is Sequestration?
Sequestration is South Africa's legal form of bankruptcy. It is governed by the Insolvency Act 24 of 1936 and involves a process where the High Court declares you insolvent (bankrupt). Once sequestrated, a court-appointed trustee takes control of your estate and liquidates (sells) your assets to repay your creditors.
There are two types of sequestration:
- Voluntary sequestration — you apply to the High Court yourself to be declared insolvent. You must demonstrate that sequestration would be to the "advantage of creditors," meaning they would receive a better payout than if no sequestration occurred.
- Compulsory sequestration — a creditor applies to the High Court to have you declared insolvent because you have failed to meet your debt obligations.
In both cases, once the court grants the sequestration order, a trustee is appointed by the Master of the High Court. The trustee takes control of your entire estate — your property, vehicles, investments, and other assets of value — and sells them to generate funds for creditor repayment. After rehabilitation (typically 4 years, but sometimes up to 10 years), remaining unpaid debts are written off.
How Debt Review Differs from Sequestration
Debt review is governed by the National Credit Act (NCA), Act 34 of 2005, while sequestration falls under the Insolvency Act 24 of 1936. This fundamental difference in legislation means the two processes have completely different objectives and outcomes.
Debt review is a restructuring process. Your debts are not written off — instead, a registered debt counsellor negotiates reduced interest rates and extended repayment terms with your creditors, creating a single affordable monthly payment plan that is made legally binding by a court order. You repay your debts in full over time, and crucially, you keep your assets.
Sequestration is a liquidation process. Your assets are sold to pay creditors, and any remaining debt is eventually written off after rehabilitation. You lose your assets but get a "fresh start" once rehabilitated.
Comprehensive Comparison: Debt Review vs Sequestration
| Feature | Debt Review | Sequestration |
|---|---|---|
| Legislation | National Credit Act (Act 34 of 2005) | Insolvency Act (Act 24 of 1936) |
| Objective | Restructure debt into affordable repayments | Liquidate assets to repay creditors; write off remainder |
| Assets | Protected — you keep your car, house, and belongings | Sold by a trustee to pay creditors |
| Debt types covered | NCA credit agreements (loans, credit cards, vehicle finance, home loans, store accounts) | All debts including non-NCA debts (tax, maintenance excluded from both) |
| Process initiated by | Consumer applies through a registered debt counsellor | Consumer (voluntary) or creditor (compulsory) applies to the High Court |
| Cost | Regulated fees included in monthly payment — no upfront cost | R15,000 to R25,000+ in legal fees upfront |
| Timeline | 3 to 5 years to complete repayment | 4 to 10 years before rehabilitation; asset liquidation can take 1 to 3 years |
| Credit record impact | Debt review flag removed on clearance; credit profile restored | Sequestration flag remains 5+ years after rehabilitation; long-term credit damage |
| Fresh start | Yes — debts paid in full, clean credit record after clearance | Yes — unpaid debts written off after rehabilitation, but with lasting credit damage |
| Income during process | You keep your income; budget structured to cover living expenses first | Trustee controls income allocation; you keep only what trustee allows for necessities |
| Who qualifies | Over-indebted consumers with regular income and NCA credit agreements | Anyone whose liabilities exceed assets; must show "advantage to creditors" for voluntary |
When Is Sequestration the Better Option?
Sequestration may be more appropriate than debt review in certain limited circumstances:
- Your debts are so large that even with reduced interest rates and extended terms, you could never realistically repay them in full
- You genuinely need a complete fresh start where remaining debts are written off after rehabilitation
- You have no regular income or your income is too low to sustain even restructured debt repayments
- A significant portion of your debt consists of non-NCA debts (such as certain business debts or obligations not covered by the National Credit Act) that cannot be included in debt review
- You have significant assets that would generate a meaningful dividend for creditors, satisfying the "advantage to creditors" requirement
When Is Debt Review the Better Option?
Debt review is the better choice for the majority of over-indebted South Africans, particularly when:
- You have a regular income (employed, self-employed, or receiving a pension/grant) that can support restructured repayments
- You want to keep your assets — your car, your house, your furniture, and your personal belongings
- Your debts can be repaid over time if interest rates are reduced and repayment terms are extended
- Your debts are primarily NCA credit agreements (personal loans, credit cards, vehicle finance, home loans, store accounts)
- You want to avoid the stigma and long-term consequences of being declared bankrupt
The "Advantage to Creditors" Requirement
One of the most important legal requirements for voluntary sequestration is that the applicant must prove to the High Court that the sequestration will be to the "advantage of creditors." This means creditors must receive a better payout through sequestration than they would if the debtor simply continued to default.
In practice, courts generally require that creditors receive a minimum dividend of approximately 20 cents in the rand (20% of what they are owed) from the sale of the debtor's assets for voluntary sequestration to be granted. This means you need to own enough assets — property, vehicles, investments — to generate a meaningful payout once liquidated.
For compulsory sequestration (where a creditor applies), the threshold is generally lower — the creditor only needs to show that there is a "reasonable prospect" that sequestration would benefit creditors as a whole.
If you do not own significant assets, you are unlikely to qualify for voluntary sequestration, making debt review the more viable option.
Can You Switch from One to the Other?
Yes, it is possible to switch between debt review and sequestration, but the process is complex and should not be attempted without professional legal advice.
If you are under debt review and want to apply for sequestration, you would generally need to have your debt review order set aside by the court first. This can be done, but it involves legal costs and procedural steps.
Conversely, if you have been sequestrated and want to enter debt review instead, you would need to wait until after rehabilitation before entering into new credit agreements that could then be placed under debt review — making this route impractical in most cases.
The key takeaway is that choosing the right option from the start is critical. Switching mid-process is expensive, time-consuming, and can set back your financial recovery significantly. Always get professional advice before committing to either route.
For most South Africans with regular income who want to keep their assets, debt review is the better option. Sequestration should only be considered when debts are genuinely unrepayable and the consumer needs a complete fresh start.
Learn More About Debt Review
If you want to understand the debt review process in more detail, read our comprehensive guide: What Is Debt Review and How Does It Work in South Africa?
Frequently Asked Questions
Can I apply for sequestration while I am under debt review?
Technically yes, but it is complicated. You would need to exit debt review first (or have it set aside by a court) before applying for voluntary sequestration. It is strongly recommended that you get legal advice before attempting to switch, as there are costs and procedural requirements involved.
Will I lose my car and house if I am sequestrated?
In most cases, yes. When you are sequestrated, a trustee is appointed to liquidate your assets — including your vehicle, property, and other valuables — to pay your creditors. Under debt review, your assets are legally protected and cannot be repossessed.
How long does sequestration stay on my credit record?
Sequestration remains on your credit record for a minimum of 5 years after rehabilitation, and in practice it can affect your ability to obtain credit for up to 10 years. Debt review, by contrast, is removed from your credit profile as soon as you receive your clearance certificate.
Is sequestration the same as bankruptcy?
Yes. In South Africa, sequestration is the legal term for what is commonly known as bankruptcy in other countries. It is governed by the Insolvency Act 24 of 1936 and involves the High Court declaring you insolvent.
What happens to my income during sequestration?
During sequestration, you must declare all income to the trustee. The trustee determines how much of your income goes towards creditor payments and how much you may keep for basic living expenses. Under debt review, your budget is structured upfront to ensure you retain enough for necessities.
