Many consumers commit themselves to debt review only to get cold feet several months later. For some, finding themselves cut off from credit lines is just too stressful, while others find their financial situation may have already improved.
A recent court ruling provided clarity around exactly how, and when, an individual may exit debt review. It is important to first understand how debt review works.
When you apply to a debt counsellor for debt review, they issue form 17.1(b) which immediately protects you from any further legal action by your creditors.
On receipt of the form 17.1(b) credit providers issue a certificate of balance within five business days and the debt counsellor then undertakes an assessment to see whether you are over-indebted.
For the debt counsellors to determine if you are over-indebted, they must establish that you are unable to meet all your credit obligations as they currently stand.
Once this assessment is completed, a debt counsellor then issues form 17.2(b) within 10 business days after receipt of the certificate of balance.
This includes a repayment plan, which could include interest rate concessions from your creditors.
Although this agreement still requires a court approval, the consumer can start the new repayment schedule as advised by the debt counsellor.
All credit bureaus are notified, and you are effectively under debt review. The next step is to apply to the magistrates’ court and the magistrate declares the consumer over-indebted.
New amendments to the National Credit Act now also allow the magistrate to lower the interest rate charged by the creditors even if the creditors did not agree to this in the debt counsellor’s original proposal.
SCENARIO ONE - UNDER DEBT REVIEW BUT NO COURT ORDER
If you have applied for debt review and the debt counsellor has issued form 17.1(b), you can still cancel the process. You have to inform the debt counsellor that you do not wish to proceed.
However, be aware that creditors can immediately act against you, if you are in arrears with contractual repayments, as you are no longer protected.
Once form 17.2(b) has been issued you are under debt review, but a magistrate has not yet issued a court order. In this case, if by the time your application reaches the court your financial circumstances have changed, then you can provide this information in the court application.
The magistrate will conduct a hearing and if in agreement with you, they can reject the recommendation – which means that the magistrate agrees that you are no longer over-indebted, and this terminates the debt review.
It is very important to remember that you would have to prove to the magistrate that you are no longer over-indebted and you are up to date with all your payments. However, the magistrate will not end your debt review just because you no longer want to participate. Remember that you have had the benefit of legal protection until this point, so make sure that any contractual arrears are up to date as your creditors can take legal action once that protection is removed.
If the magistrate believes you are still over-indebted, they will issue the court order.
SCENARIO TWO - EXITING DEBT REVIEW AFTER A COURT ORDER HAS BEEN ISSUED
The recent ruling found that no court can set aside the debt review order until all the conditions are satisfied – namely that all your debts, apart from your mortgage – are settled as per the court order.
This means that even if your financial circumstances have changed, you will not be able to exit debt review.
The only way to exit the debt review in this case is to accelerate all your debt repayments and settle your debts as quickly as possible.
This could be advantageous if you received an interest rate concession in the agreement as you would be able to settle your debts sooner than if you were not under debt review.
What people most want to know about personal finance
I WAS TRICKED INTO DEBT REVIEW. I RECEIVED A CALL FROM SOMEONE SAYING THEY COULD HELP ME CONSOLIDATE MY DEBTS. I ONLY REALISED AFTERWARDS THAT I WAS PUT UNDER DEBT REVIEW
Be aware of what you are signing or agreeing to as this tactic is being used by unscrupulous debt counsellors. They use terms such as “consolidation” instead of “debt review”.
If the debt counsellor has only issued form 17.1(b), then you have the right to tell them to stop the process. You can also lodge a complaint with the National Credit Regulator (NCR) if you are unhappy.
If form 17.2(b) has been issued, then you still have an opportunity to argue your case before a magistrate. Remember, however, that the magistrate could still find you over-indebted. You do have the option to switch to another debt counsellor. The receiving debt counsellors will have to continue with the process from that point forward.
“Consumers who have not consented to be placed under debt review can lodge a complaint with the NCR, and the NCR will investigate the issue. And if the evidence supports the consumer’s contention, the debt counsellor will be instructed to remove the consumer from debt review.
“In addition, appropriate action will be taken against the responsible debt counsellor,” says Nthupang Magolego, senior legal adviser at the NCR.
I ENTERED DEBT REVIEW BUT HAVE SUBSEQUENTLY MADE ARRANGEMENTS WITH MY CREDITORS [SINCE] MY FINANCIAL POSITION HAS IMPROVED
Credit providers do not like customers going under debt review as they are often required to provide interest rate concessions.
In many cases, when creditors receive notification from a debt counsellor that a customer is going under debt review, they may contact the customer to make arrangements.
If form 17.2(b) has not been issued you can ask your debt counsellor to release you, but make sure you are not in arrears on any of your credit agreements as your legal protection would be removed. If form 17.2(b) has been issued, you can take this new information to the courts.
The same applies if your financial circumstances have improved.
“If their financial situation has improved it is advisable to share this with the debt counsellors and for the debt counsellor to make a recommendation of not over-indebted,” says Paul Slot of the Debt Counselling Association of SA. “The magistrate is then more likely to agree.”
It is important to understand that if you make arrangements with creditors and form 17.2(b) has been issued, you will remain under debt review until the court hearing.
Remember you may lose the interest rate concessions approved by creditors and if you are not up to date with all your debt repayments, you should expect legal action from creditors.
If you feel that your debt counsellor is delaying the court hearing, you can always move to another debt counsellor. Some fees may apply.
I HAVE BEEN UNDER DEBT REVIEW FOR AFEW YEARS AND AM IN A POSITION NOW TO RESUME MY ORIGINAL CREDIT AGREEMENT
Once a court order has been issued you have no option but to settle your outstanding debts as per the court order.
You can, however, pay off those debts as quickly as you want. So speak to your debt counsellor for a new repayment plan.
HOW DO I KNOW IF A COURTORDER HAS BEEN ISSUED?
According to Slot, the debt review application must be set down within 60 business days in court. However, the actual hearing date depends on the court roll which can take between two to six months.
Slots says the consumer will also be asked to sign a confirmatory application. If the consumer delays in doing this and the matter is not set down in court within 60 days, the credit providers could terminate the agreement and take legal action.
Your debt counsellor should inform you of your court application and outcome.
It is very important to keep in contact with your debt counsellor to understand the status of your application.
A debt counsellor should also give you a copy of the court order.
If you are not receiving a satisfactory service, you can move to another debt counsellor and lodge a complaint with the NCR.
If you have paid off all your debts, but your debt counsellor will not issue a clearance certificate, you may apply to the National Consumer Tribunal to review that decision.
If the tribunal is satisfied that the consumer is entitled to the clearance certificate the tribunal may order the debt counsellor to issue a clearance certificate to the consumer.
A debt counsellor must, within seven days of the issuance of the clearance certificate, file a certified copy of the clearance certificate with the national register established in terms of section 69 of the National Credit Act and all registered credit bureaus.
If the debt counsellor fails to file a certified copy of the clearance certificate, the consumer may file a certified copy of the certificate with the national register and lodge a complaint against the debt counsellor with the regulator.
To lodge a complaint about a debt counsellor, you need to send the complaint to the National Credit Regulator at email@example.com or send a fax to 087 234 7789
For information about the debt counselling process, you can contact the Debt Counselling Association of SA:
Tel: 086 143 2272