The real benefit of debt review is that it can protect your assets from being repossessed by the credit provider.
The disadvantage is that you cannot apply for any credit while under debt review and the only way to exit the review is to settle all outstanding debts, except for those related to car and house financing.
This week, we received two interesting letters from readers who highlight both the pros and cons of opting for debt review.
Tumi wrote to us because her car was about to be repossessed by the bank, despite the fact that she found herself in an improved position to meet the monthly repayments.
She had been retrenched 17 months earlier and fell behind on her car repayments. The bank had started a legal process to take back the car, but Tumi informed them she was entering debt review. The bank therefore stopped the legal action.
Tumi, however, then decided not to enter debt review because she had a new job prospect – but she did not inform the bank of that decision.
She is now earning enough money to meet the car repayments and to pay extra each month to try to catch up the R140 000 in repayment arrears. The bank, however, is not interested in her offer because they feel she acted in bad faith and they must consider they have already lost value by not taking back the car earlier – because it has now depreciated further.
Interestingly, in this case Tumi would be far better off in debt review because she would have been able to negotiate a lower repayment amount and may even have been offered a lower interest rate.
Now she faces the prospect of having her car repossessed but still being tied to making up the outstanding payments.
On the other hand, Johan wrote to us to complain about being caught in debt review.
“I completely understand that the rules around credit provision for those under debt review have been put in place to protect consumers from creditors, overindebtedness and themselves, but there are exceptions,” Johan wrote.
In his case, he went under debt review in early 2013. He earned around R16 000 a month and agreed to pay back R4 000 a month towards his debt.
Since then, his income has increased to R37 000 and he has repaid more than half of his outstanding debt.
He has now been offered shares in the company where he works, but cannot get the financing to purchase the shares.
“In my situation, debt review is not protecting my best interests,” says Johan.
Ian Wason, of debt-counselling firm DebtBusters, confirmed that Johan had no recourse.
“Unfortunately, with the amendments to the National Credit Act, he can no longer cancel debt review. He has to repay all his debt before he can get a clearance certificate.
“He should, however, inform his debt counsellor that his income has increased by 130%, as a new budget should be done and he should increase his debt repayments to get him out of debt sooner,” says Wason.