MONEY CLINIC | I am unemployed and can't afford my home or car. What should I do about my debt?

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Sequestration requires an application at High Court (which involves engaging the services of legal professionals), and essentially means everything the consumer owns that is of value would be sold off to pay off existing debt.
Sequestration requires an application at High Court (which involves engaging the services of legal professionals), and essentially means everything the consumer owns that is of value would be sold off to pay off existing debt.
krisanapong detraphiphat/ Getty

A Fin24 reader who's been unemployed during the Covid-19 pandemic is struggling to repay her debt. Looking to an expert, she questions what her next step should be.

She writes: 

Unfortunately, the continued yet varied levels of lockdown have hit me very hard. I have been unemployed for the better part of the last two years, only qualifying for a R350 grant. I have the following debt to repay. 

Home loan

I have ensured that I have paid this each month since taking the three-month holiday period during the pandemic. 

Car loan

The end of September 2021 was the first time I could not pay my car loan. I did contact the bank, but they said that they could not assist me. I've been paying for my car since 2016, and this will be my first missed payment. I did offer a smaller amount, though, with which the provider disagreed.

Retail accounts

I could only offer R100 this month, which I paid.

Retailers are not happy with this. 

2 x other loans

I did not pay these for a few months after the first lockdown.

Both of these have insurance linked to them. These insurance companies have given me the runaround with no communication forthcoming. But attorneys contact me frequently. 

2 x credit cards

I have payment arrangements in place and have paid these every month.

I am not sure if I will be able to pay these at the end of October 2021. 

What do I do? Should I have myself sequestrated? But then what happens with my house and car?

Benay Sager, chief operating officer at DebtBusters, responds: 

In this case the consumer is facing financial hardship, and sadly this is the case for many consumers in South Africa since the beginning of the lockdowns in 2020. This consumer seems to have a good understanding of their debt situation, and is keen to pay back their debt, which are both great starting points. Where there is intent, there is generally a few options available.

Generally, the range of debt management solutions available to the consumer depend on the following factors:

  • Size of the debt (i.e. how much money is owed)
  • The composition of the debt (i.e. home loan, personal loan, credit card or combination thereof)
  • Affordability of the consumer (i.e. how much the consumer can afford to pay back towards their debt repayments)
  • Assets of the consumer (what the consumer owns that can be sold to pay for their outstanding debt)  

The combination of these factors determines which options are best – all the way from debt consolidation to sequestration. Usually, debt counselling is a great starting point for consumers who have a source of income, as debt counselling works on the principle that consumers pay back what they can afford. 

With that said, since the consumer indicated their income is limited, broadly speaking we believe the consumer would have three indicative options:

1. Sell their vehicle to pay off some of the debt. This option would work only if the current value of the vehicle is more than the outstanding amount owed, therefore resulting in excess money for the consumer if they sell the car. It would be best if the consumer can get the vehicle valued first, so they can determine whether this is a real option.

2.  Apply for sequestration. Sequestration requires an application at High Court (which involves engaging the services of legal professionals), and essentially means everything the consumer owns that is of value would be sold off to pay off existing debt. This is quite an extreme solution for many consumers, but if successful it does allow a consumer to start afresh.

3. Work with each credit provider to get debt restructured. This could be daunting when a consumer does this on their own, especially in this case since there are at least eight accounts involved (possibly more). The best course of action is to get a debt counsellor involved to see what options are available for restructuring the existing debt.  

The first two options could be daunting, and may not result in the best outcome for the consumer, especially if the consumer has a family or dependents to support. Therefore, we recommend the consumer gets in touch with a reputable debt counsellor to explore option three – this is particularly relevant as the consumer hinted that they have been paying towards their debt (even in absence of their previous income levels), so it is an option that must be explored in our view.  

Questions may be edited for brevity and clarity.

  • Have a money problem that needs solving? Fin24 can help! Send your question to editor@fin24.com

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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