Debt Review Removal in South Africa

Step 1 – When can a consumer (YOU) leave the debt review process?

Section 71(2)(b)(i) of the National Credit Act originally provided that consumers could only exit the debt review process by receiving a no objection certificate after paying all their rescheduled debts in full.
The effect of this provision is that, in cases where a home loan was part of the debt verification application, consumers must continue to undergo debt verification for the entire term of the home loan, even after paying off the rescheduled short-term debt.
However, this provision will change with the enactment of the National Credit Amendment Act (NCAA) under Section 71(1) as follows:
Current Guidelines for Removing Debt Rescheduling
There are 3 guidelines for considering the removal of debt.
A consumer whose debt has been rescheduled under part D of this chapter must be issued a certificate of discharge by a debt counselor within seven days after the consumer -.
(a) Has discharged all obligations under each credit agreement that was the subject of the debt restructuring order or agreement in accordance with that order or agreement; or
(b) Demonstrated:
Financial ability to meet future obligations under the debt restructuring order or agreement under (aa) a mortgage contract securing a credit agreement for the purchase or improvement of real property; or (bb) a long-term contract, as may be prescribed;
there are no arrears on the debt rescheduling referred to in subparagraph (i); and
all obligations under all credit agreements included in the debt restructuring order or agreement, other than those considered in clause (i), have been paid in full.

Step 2 – Can a debt counselor then terminate or withdraw the debt review process?

Unfortunately, the answer is NO. This is because a debt counselor has no legal authority to terminate or withdraw from the debt review process.

However, there are several ways to remove a consumer from the debt review process, which are described below;

– Once a court order for debt review has been obtained, the consumer cannot terminate or withdraw from the debt review process, but can apply to the court for an order declaring that they are no longer over-indebted.

– The consumer may only withdraw or terminate the debt review process prior to the declaration of over-indebtedness under section 86(7) of the Act and the issuance of Form 17.2, subject to payment of the debt counseling fee in accordance with the NCR Debt Counseling Fee Guidelines. 

Also note that as a consumer, you have the right to make direct payments to creditors, which will not be construed as a refusal to cooperate and should not be used as a reason for your debt counselor to stop debt counseling services.

If you decide to make direct payments to your creditors, you should keep the following points in mind;

• The consumer remains responsible for paying all agreed upon amounts in full and on time.
• Proof of payment should be sent to your debt counselor monthly to keep track and allow for follow-up, as a consumer cannot benefit from debt counseling without a debt counselor.
• Consequences of underpayments or late payments (e.g., risk of cancellation by credit providers).
• Debt counseling fees are payable to a debt counselor for services provided and this includes payment of follow-up fees.

– In order for a debt counselor to issue a no objection certificate, all aftercare fees must be current. If the debt counselor has stopped providing services, the consumer must provide proof of settlement letters from credit providers in order for a debt counselor to issue a certificate of good standing.  

In summary, the legal process of debt verification is very complex and must be clearly explained to the consumer, understood and not taken lightly.

Today, many consumers often turn to debt review as a solution to their financial problems. The National Debt Review Centre warns against seeking debt counselling as there are both advantages and disadvantages to this procedure.

Debt counselling was introduced in 2007 by the National Credit Act 34 of 2005 and is aimed at over-indebted consumers.

One of the main advantages is that debt counselors can negotiate with the client’s creditors to restructure an affordable lump sum payment.

Pros and Cons of Debt Counseling

As with many things in life, there are pros and cons to debt counseling. The pros far outweigh the cons, but you will have to make some sacrifices and commit to completing the program. Let’s start with the cons and leave the good news for last.

For

The good news is that you can benefit from this debt relief solution in the following ways.

• Your NDA-registered debt mediator negotiates on your behalf with your lenders.
• Lenders and collection agencies can no longer harass or threaten you.
• Your home, car and wages are safe from foreclosure.
• Your debts are consolidated without the need for credit.
• Only one monthly payment will be made.
• Your monthly payments will be reduced.
• You can support yourself.
• You only pay what you can afford.
• It will not leave a permanent mark on your credit profile.
• All debt counseling fees are part of your repayment plan.

Disadvantages

Here are the disadvantages you may face:

• You may not qualify.
• Some accounts may be excluded.
• You will be reported to the credit bureaus, but not blacklisted.
• It may take longer to pay your bills.
• You can usually pay more interest.
• You will have to pay a fee for debt counseling.
• You can’t apply for new loans or use your credit facilities.
• It is very difficult to cancel.

We see many companies on the internet that offer debt arrangements and deceive most South African consumers with promises of great things. Once you have requested a debt check and made the new rescheduled payment and the debt check flag is finally removed from your credit profile, you can take out a loan. HOWEVER, we recommend that you work with your debt counselor to develop a realistic budget before taking on any debt.

Step 3

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Step 4

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