Understanding the debt review process and how this can protect your assets from being repossessed by your credit provider.
Debt counselling (also known as Debt Review) is a process to assist indebted consumers to manage their debt. The National Credit ("the NCA") brought debt counselling into being. The process is facilitated by a Debt Counsellor, who must be registered with the National Credit Regulator ("the NCR").
In this article, we examine Debt Counselling and address the following questions:
The first part of this article addresses the Debt Counselling process, while the second part covers a few related issues and looks at the pros and cons of Debt Counselling.
Make sure you appoint a reputable Debt Counsellor. Once appointed, the Debt Counsellor will issue a letter confirming that you have applied for Debt Counselling. The NCR sets all Debt Counselling fees. Your Counsellor may not charge more than the set fees.
(Note that Debt Counselling applies only to debts resulting from the granting of credit in some form, such as your bond, car repayments, credit card, store accounts or loans. Other kinds of debt, not involving credit, such as overdue school fees, doctors' bills, phone accounts, etc., are not part of the Debt Counselling process).
Once the Debt Counsellor has all the information, he requires from you, he informs your creditors that you have applied for Debt Counselling. He then determines whether you are "over-indebted". If he finds that you are indeed "over-indebted", Debt Counselling commences, and the Counsellor informs your creditors. If the Counsellor determines you are not "over-indebted", the process is terminated. The Counsellor may require you to pay a "rejection fee", for his work up to that point.
Once they are notified of the Debt Counselling, your creditors must provide information concerning your debts, such as the outstanding balances, interest rates and monthly installments. Your Debt Counsellor then drafts a budget, based on your income and expenses, and the debt you must pay to your creditors. The proposed budget is designed by your Debt Counsellor to ensure that the repayments you undertake are affordable. This budget forms the basis of an offer put to your creditors.
Your Debt Counsellor will give you a draft agreement to be proposed to your creditors. This agreement contains the terms of the repayment plan recommended by your Debt Counsellor. Once you have approved the proposal, your Debt Counsellor will present it to your creditors, who will either agree to the proposal or make a counteroffer.
Once all the parties agree, the proposal is signed and formalised by the NCR, or by a court order. If the parties cannot reach an agreement, the matter will be referred to a Magistrate who decides if the offer is suitable.
If you default on your payments to a credit provider, they can withdraw from the Debt Counselling process and sue you for the debt. Similarly, if your Debt Counsellor does not finalise the process within the prescribed time, a credit provider can sue you for the debt.
You are only permitted to terminate Debt Counselling before the finding that you are "over-indebted". In this case, you will return to paying your creditors in terms of your original agreement with them (i.e. before you entered Debt Counselling). However, once you have been issued with a Debt Counselling order by a court, you can only withdraw from Debt Counselling by order of a court.
A Debt Counsellor can withdraw his/her services should you breach the terms of the Debt Counselling agreement. However, he/she may not terminate the Debt Counselling Agreement. You can request a transfer to a different Debt Counsellor, provided you pay your first Counsellor's fees.
If you have fully satisfied all your payment obligations under the Debt Counselling agreement, your Debt Counsellor must issue you with a Clearance Certificate (Form 19). Once you have the Clearance Certificate, credit bureaus must clear your credit record, and you will be able to apply for credit once again.
Being in Debt Counselling may prevent your home or vehicle from being repossessed or sold by your bank. If you are in Debt Counselling and you receive a letter of demand from your bank, the law prevents the bank from selling your home or repossessing your vehicle. If you are not in Debt Counselling at the time you receive a letter of demand, the law allows you ten working days to obtain the services of a Debt Counsellor. He will be able to prevent the bank from seizing your assets.
Lending is considered "reckless" where the creditor did not do a thorough "affordability assessment" to see if the consumer could afford the repayments. In such a case, the credit agreement will be null and void. If a lender grants a consumer credit which leads to his over-indebtedness, it is also considered "reckless lending", and the agreement will be null and void.
Yes. If a debt has not been paid for three years, you no longer have to pay it. This is called "prescription", a legal principle which means a person doesn't have to pay an outstanding debt after three years have passed, provided the creditor has not issued a letter of demand during the three years, or you have admitted your liability.
Debt Counselling can provide a lifeline to heavily indebted consumers. However, it is not without controversy. Some critics believe the process is not necessarily in the best interests of consumers. Here is a list of some of the pros and cons of Debt Counselling:
Every consumer's circumstances are unique. Your financial situation will determine whether Debt Counselling is for you or not. You must discuss your case with suitable professionals, including your Legal & Tax Services Advisor.
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