Debt Payment on Credit: This is merely a short-term solution and should only be used if the insolvency is temporary of nature. Existing lines of credit are used to borrow money or to free up other funds to pay off overdue creditors in order to avoid bankruptcy. Although it creates new liabilities, new extended payment deadlines are obtained.


Debt Consolidation: One big loan is used to pay off many others and the one loan is the repaid over a long-term period. This is usually done to secure a lower interest rate and for the convenience of having to pay only one creditor, thus saving on administrative and finance costs.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house.

Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. In practice, many people are in credit card debt because they spend more than their income. If that habit continues, the consolidation will not benefit them much because they will simply increase their credit card balances again.

Rescheduled Debt Payment: This option requires the consent and cooperation of creditors and is usually considered a medium to long-term strategy. Creditors are informed of the situation and requested to reschedule the debt repayment over an extended time in lower monthly instalments. The lower monthly repayments will lessen monthly expenditure, but will result in extended repayment periods, which usually results in more interest payable.

When approached creditors might also refuse and initiate legal action to recover the money due to them, in anticipation of a possible bankruptcy. This option should be handled very delicately, and creditors should be assured of the debtor’s intention to avoid bankruptcy.

Liquidation of Assets: Selling off assets is also a common hedge against insolvency in order to generate immediate cash for timely debt repayment, especially amongst businesses. If this options fails, the Debtor might not have enough assets to file for bankruptcy, or if declared bankrupt, face charges in terms of the Insolvency Act for preferring certain creditors to others, etc. It should not be attempted without legal council.

Another option for legal entities to avoiding bankruptcy is acquisition by a larger corporation. It is not unusual for major conglomerates to seek out small but commercially viable companies for acquisitions or takeovers. Even if the smaller company is currently flirting with insolvency, the rights to its signature product lines may prove valuable enough to save it from financial ruin.

Administration Order: If a person’s debts do not exceed R50,000 an application can be made to the relevant magistrate's court for an administration order. This gives you a degree of breathing space by allowing you to pay off your debts in fixed monthly instalments that will not exceed the difference between your income and reasonable expenditure.

Once an order has been issued for the administration of your estate, you may not incur further debts, or raise credit, without explaining to the other party that you are under an order of administration. While an administration order is in force, no creditor has any legal remedy against you or your property for collecting money owing, subject to some exceptions (for instance, a mortgage bond), without the permission of the court.

Your creditors are entitled to attend a hearing of an application for an order of administration and may question you on matters such as your assets, standard of living and the possibility of cutting down on expenses. The order may specify that certain assets should be sold.

Judicial Management: This option is only available for companies. An application is made to the relevant court, in order to have the company placed under judicial management. A Judicial Manager is appointed to run the company and to pay off the company debts as and when money becomes available for this purpose, subject to certain conditions.

Once an order has been issued, no creditor has any legal remedy against the company, save for some exceptions.

Compromise: An agreement is reached between the debtor and the creditors that certain assets will be liquidated subject to terms and conditions. The proceeds will then be accepted as full and final settlement of the debts, once again subject to certain terms and conditions.

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