Trapped in administration? Cancel it or write it off!

Trapped in administration? Cancel it or write it off!

An administration order is granted in terms of the Magistrates’ Court Act 32 of 1944 where the consumers debt is less than R50 000.00. An administrator is then appointed to collect a monthly amount that is distributed amongst the consumers’ creditors as detailed in the administration order.

Administrators can add new creditors to the list of those already included in the administration order, after the administration order is granted. This may result in the total debt exceeding the R50 000.00 threshold and a growing list of creditors to be paid, together with the accumulated interest charges levied on the debt.

Consumers can apply to court to rescind or cancel an administration order, even if the debt under administration is not fully paid. The most common instance when this can be done, is when the consumer’s financial circumstances have improved to the point where the consumer is no longer over-indebted and can pay the affected creditors a substantially larger amount than what the administration order demands. Other instances when an administration order can also be cancelled are, if “good cause” can be demonstrated to the court. Examples of good cause include:

(a) change in financial circumstances, for instance, you earn more today or have less debt;
(b) the creditors are not being paid timeously. For instance, the administrator is making payments to the creditors on a trimonthly basis whereas the debtor can make payments directly to the creditors on a monthly basis
(c) the administrator is not duly performing their duties as an administrator or the administrator’s charges are in dispute

If the cancellation of the administration order is not possible on any of the above grounds, the consumer may want to consider sequestration in order to terminate and cancel the administration process. Sequestration would be a suitable option where the consumer cannot in fact afford the monthly amount required in terms of the administration order.

Take the case of John Doe. John Doe has a nett income of R6 000.00, excluding a monthly deduction of R850 for an emolument attachment order that goes toward his administration. His living expenses are R5 300.00. This leaves a surplus of R600.00 is less than his monthly administration of R850.00. Clearly, the court will not grant the cancellation of the administration order.

However, the above scenario shows that Mr Smith is also unlikely to be able to cope with the R850.00 being deducted from his salary every month. He cannot afford it. He has to find a way to have the debt “written off”. Sequestration is an option.

If Mr. Smith is sequestrated, all his debt would be “written off”. This means that he would only have to provide for the repayment of 20% of his total outstanding debt and his outstanding creditors would receive 20 cents in the Rand.

Mr Smith’s administrator advises that the latest balance is R45 000.00. This means that under sequestration, an amount of approximately R9 000 would have to be provided for repayment to his creditors (that is, 20 cents in the Rand). Further, with sequestration, the garnishee would also stop, thereby increasing his monthly nett income.

However, Mr. Smith will not be able to obtain credit until he has been rehabilitated. A person is generally rehabilitated after 4 years, calculated from the sequestration date.