A walk down insolvency and rehabilitation avenue

It can take up to 10 years for a court to declare that a person is fully rehabilitated from insolvency. 

Insolvency is when a person’s income is far less than the debt they owe to their creditors and in most cases indebted consumers will approach the court to declare insolvency in order to be protected from the people they owe.

Insolvency became topical last week after it was discovered that the newly elected mayor of Tshwane, Murunwa Makwarela, had an unresolved insolvency issue before he took office on Monday. The matter stemmed from a levy’s bill he had not paid for a property in the city some years ago. The municipal manager, Johann Mettler, immediately removed Makwarela from his seat because government policy does not allow a person with an unresolved insolvency issue to be a mayor.

However, Makwarela produced a certificate to prove he had been rehabilitated and he was then reinstated to his new job. But it soon emerged that the document is actually a fake and now Makwarela is jobless and partly with an unintended fraud charge against him.

Gerald Mwandiambira, CEO of the South African Savings Institute (SASI) said the insolvency rehabilitation document was very important for one’s future financial transactions. 

“That is a very important document because it means the court has assessed your financial situation and is now saying you are no longer insolvent, you are back to life and in the credit world. You can produce that piece of paper to bank and apply for loans in future. Your name will be in the court history forever and also at the credit bureau for five years but you can still take credit if you show that you have been rehabilitated,” said Mwandiambira.

Unlike debt counselling, insolvency is a court process that involves the applicant’s lawyer.

“In SA it’s normally companies who go the insolvency route because you need a lawyer to represent you in court. Its common for Black people to go the debt counseling route and only those with a significant amount of money will hire a lawyer to kickstart their insolvency crisis,” said Mwandiambira.

During the period of insolvency the consumer cannot take credit, become a company director or take up certain government jobs as in the case of Makwarela. The insolvent’s financial affairs are managed by a court-appointed curator. 

Mwandiambira said the lawyer or curator who applies for insolvency also has the responsibility of going to court to get the certificate of rehabilitation. 

“The lawyer will have to show the judge proof that the client has paid all his or her debt to the creditors and once the court is satisfied, the certificate is issued,” he said.

One can apply for rehabilitation any time after they have been declared insolvent as long as the debts are settled, according to the department of justice. 

“After 10 years have expired an insolvent is deemed to be rehabilitated unless a court orders otherwise upon the application of an interested person. Such an application must be made within the 10-year period.”

Mwandiambira’s advice to indebted consumers is: “Don’t run away from debt, seek legal help because no debt is unnegotiable.”