The current economic climate within which we find ourselves is riddled with uncertainty and volatility, resulting in credit consumers being affected thereby in that the repayment obligations pertaining to their respective home loans, vehicle finance, clothing accounts and/or any other credit agreements are ever increasing. As interest rates fluctuate and electricity tariffs increase many consumers are left struggling to pay their monthly expenses and find themselves in a situation whereby they are over-indebted and have no other choice but to consider applying for debt review to potentially ease the financial burden.
Debt review is a process regulated in terms of the National Credit Act 34 of 2005 (NCA) and the National Credit Amendment Act 7 of 2019 (NCAA). The objective of Debt review is to bring some sort of debt relief and/or financial reprieve to the consumer. This relief is provided by restructuring the consumer’s monthly obligations and/or monthly debt repayments for a certain duration or until the debt has been expunged. In terms of Section 86 of the NCA, the consumer will apply to a debt counsellor for relief who will then determine whether the consumer is indeed over-indebted or not. Once a determination has been made and the debt counsellor has subsequently concluded that the consumer is over-indebted, he/she will make a recommendation to the Magistrates Court to restructure the consumer’s credit obligations which would have the effect of reducing the consumer’s respective monthly contributions/instalments by virtue of the debt repayments having been prolonged and extended over a longer period of time. Once the Magistrates Court has granted the judgment in favour of the debt-review process, the consumer is only required to pay the consolidated/reduced monthly instalment to each respective credit provider in accordance with the restructuring order.
Should you think of undertaking and/or entering into the Debt Review process, the following would be worth consideration:
Advantages:
- Should you have more than one credit agreement, the debt can be reduced and distributed over a longer period of time, thereby reducing the monthly contributions/instalments due to each respective credit provider;
- Credit providers communicate with the debt counsellor;
- The assets are protected and therefore the credit providers cannot sue the consumer during the debt review process provided the debt review process has not been terminated by means of a Section 86(10) Notice delivered by the credit provider. Should the debt review process have been cancelled by a particular credit provider, said credit provider will no longer be part of the process and can proceed with summons if it so deems fit.
Disadvantages:
- The consumer cannot obtain additional credit while under debt review;
- There are debt review fees;
- The consumer remains flagged with the credit bureau’s until such time that the consumer has repaid all credit agreements other than long term agreements in certain instances;
- Debt review does not lessen the burden of current financial loads, it merely distributes it over a longer period of time to make the load more manageable;
- Debt review is not a process that one can easily cancel and/or remove all traces thereof on your credit record.
It is important to note that the Debt Review process is not a life sentence. In the event that a consumer under Debt Review has settled their debts, then he/she can proceed to obtain a clearance certificate from the debt counsellor. Section 71 of the NCA provides that debt must be fully paid up, however with credit agreements that are long term such as mortgage bonds, the consumer must be able to demonstrate that they can continue to pay the debt and that there are no arrears on the debt.
In light of the above, should you be under financial strain and/or not be able to settle your monthly debt repayments/obligations, entering into debt review proceedings may be worth consideration and may be suitable for your particular situation and/or circumstances. However, as set out above, there are notable disadvantages to debt review proceedings as well and any decision made herein should be carefully considered and be taken on a case-by-case basis.
Article by Karabo Zondo
