Sequestration can offer a solution for individuals facing overwhelming debt, allowing them to legally declare insolvency and start fresh. However, sequestration also comes with significant drawbacks that impact your financial freedom and career opportunities. Before deciding, it’s essential to understand the potential negative effects that come with sequestration.
1. Loss of Eligibility to Serve as a Company Director or Closed Corporation Member
One of the immediate consequences of sequestration is that you can no longer serve as a director of a company or as a member of a closed corporation. This restriction is often a considerable setback for business owners and those in corporate roles. Sequestration effectively prevents you from participating in the formal economy in a leadership or ownership capacity until you’ve been rehabilitated, which could take several years. For individuals in leadership positions or aspiring entrepreneurs, this restriction can limit career growth and entrepreneurial pursuits.
2. Ineligibility to Hold or Manage a Trust Account
Sequestration also prevents you from having or administrating a trust account. This is especially significant for individuals in professions where managing client funds is part of the job, such as legal practitioners, real estate agents, or financial advisors. Losing the ability to handle trust accounts can impact your employability in these fields and may require a career shift, even if temporarily.
3. Limited Access to Credit
A significant downside of sequestration is that it restricts your ability to obtain credit until you’re officially rehabilitated. Credit bureaus will flag your insolvency status, which deters lenders from extending any new credit to you. For most individuals, this means you can’t apply for loans, mortgages, or even standard credit cards. While it may help you avoid further debt, this restriction also limits financial flexibility and the ability to make essential purchases, from buying a car to securing housing.
How Long Do These Effects Last?
The restrictions from sequestration generally last until rehabilitation, which occurs automatically after 10 years. However, under certain conditions, you may apply for early rehabilitation within a shorter timeframe, often 6 months to 5 years, depending on your financial circumstances and history.
