Living insolvent person vs. a deceased insolvent estate

Living insolvent person vs. a deceased insolvent estate

In its simplest definition insolvency is a state in which one’s debts (fairly estimated) exceeds one’s assets (fairly valued). It indicates that debts cannot be paid and action needs to be taken so one’s creditors can be paid. There are different options available to insolvent individuals, like debt review or sequestration. A deceased estate is declared insolvent when the realized assets of the estate will be insufficient to fully meet all the debts and liabilities to which it is subject. It is the executor’s duty to ensure that appropriate actions is taken should a deceased estate be declared insolvent.

Recourse for a living insolvent individual

If you reach a state of insolvency as an individual, you have to decide on a course of action to ensure that you can pay your creditors. If you can’t and you leave debs unpaid, there are also steps creditors can take, like requesting the Court for a sequestration order against you.

It is preferable for you to get ahead of your situation and rather file for such a request yourself. There are three main legal options available to individuals facing insolvency: debt administration, debt review, and sequestration.

• Debt administration is applicable if your total debt doesn’t exceed R50,000. It will usually reduce your instalments and extend the repayment terms of you debt. A debt administrator will manage your finances. These individuals are not required to register with a regulatory body and you should always be on top of your affairs when under debt administration.

• Debt review will usually allow you to repay debts at a reduced interest rate and also extend the terms of your debt. A debt counsellor will help you through the process. Debt counsellors are required to register with the NCR. He or she will renegotiate payments on your behalf, but creditors can reject the plan your counsellor comes up with.

• During Sequestration a trustee is placed in complete control of your estate and he or she usually has to realise your assets in accordance with the Insolvency Act 24 of 1936 to the benefit of the creditors. It often, but not always, leads to the sale of your house, car, and other assets.    

A deceased insolvent estate

When an individual passes away his/her estate, the assets, income and liabilities, is vested in the Master of the Court and an executor(s) is appointed to manage the estate. The executor has to determine the state of the estate. Usually he/she has the see to the payment of the estate’s creditors. If the executor finds that the estate is indeed insolvent, it has to be administered in terms of Section 34 or the Administration of Estates Act. The Insolvency Act 24 of 1936 can also play a role.

The main duties of the executor are to inform the creditors as to the estate’s insolvent status and realize the assets. The creditors can, however, direct the executor to surrender the estate in accordance with the Insolvency Act. If this does not happen, the executor shall continue to realize the estate.

Creditors with a claim less than R1,000 shan’t be reckoned. Creditors that hold moveable assets as security have the opportunity to place a value upon it which will be reckoned as unsecured. This claim shall be paid out before other creditors. The executor will ultimately proceed to realizing the estate and submitting an account to the Master of the Court. Thereafter he/she shall distribute the proceeds amongst the creditors according to the order of creditors’ preference in a sequestrated estate as lain out in the Insolvency Act. If any person that needs to receive monies cannot be found, the executor pays that into the guardian’s fund for safe keeping.

When dealing with a deceased estate, the surviving family and heirs can be caught off guard if it turns out to be insolvent. AED attorneys will always explain what is happening and why it is happening in the simplest of terms to ensure that you are always in the know

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.