COUPLES: The Consequences and the Confusion

 Being married is much more than romance and companionship.

When a couple gets married, they’re entering into a legally-binding contract. This has implications on many other aspects of their lives, including the financial aspect. These effects are not always as black-and-white as they may initially appear, and are a source of debate and argument, even among legal professionals. This article aims to clarify a few issues and answer a few questions that have recently arisen.

1.
Many people are unaware that spouses in traditional African marriages, even if those marriages have not been registered with Home Affairs, are legally viewed as being married in Community of Property. There is a “Recognition of Customary Marriages Act” (no.120 of 1998) which confirms this. This means that husbands and wives who are married by way of traditional African rites have combined their estates and accept liability for each other’s affairs.
2.
There is some dispute about the impact of Community of Property marriages on applications for credit. In a previous article which we’d referenced, it was implied that if one spouse applied for credit, the creditor did not necessarily have to require the other spouse’s consent. However, subsequent research has suggested that this may not strictly be the case. Our legal experts are of the opinion that the Matrimonial Property Act requires that BOTH spouses must be reasonably expected to know and understand the conditions of any transactions which could affect their joint “estate”. Thus, because decisions such as applying for credit affect your “estate” as a whole, ALL parties involved in that estate must be included in the decision. This implies that the creditor is obligated to ensure that they have the consent of both spouses before they can grant the credit. This opinion is supported by the fact that, should the spouse who took the credit default on their repayments, the other spouse COULD be held liable.
This therefore implies that a creditor who grants credit to someone who is married in Community of Property WITHOUT confirming the spouse’s consent could be deemed to have granted that credit illegitimately or recklessly.
(Thanks to our legal experts Tim Henshall and Quintin Zimmermann for their input on this issue).
3.
Getting divorced DOESN’T necessarily mean that you’re no longer bound to contracts that you entered into while you were married. Consider the case of a couple who is granted a Home Loan. This normally means that both spouses are responsible for the repayments (i.e. they are “jointly and severally liable”). If one spouse is unable to pay, the other spouse is expected to take responsibility for the full instalment. If the couple later gets divorced, both are still responsible for ensuring that the Home Loan contract is honoured.
Another question which has been addressed to us a few times concerns couples who had applied for Debt Review, and the relevant Debt Restructuring Court Order was granted. Even if they subsequently get divorced, that has no impact on the Court Order. The Order is still binding on both of them. This means that, even if one spouse pays all of their debts in full, the Debt Counsellor is legally NOT allowed to issue a Clearance Certificate if the other spouse hasn’t paid all of THEIR debts in full.

We whole-heartedly support the institution of marriage. However, amidst the excitement and emotion that surrounds marriage, it’s easy to overlook the reality that it also impacts on your legal status, which can have long-term implications.

MISSED MONTHLY BOND REPAYMENTS? NOW WHAT?

In today’s financial climate in South Africa, many people are finding it harder and harder to meet all their financial obligations. The past few months have seen significant increases in the petrol price as well as V.A.T., which has increased the demands on most wallets. As a consequence, more and more people are finding that they’re just not able to make their required debt repayments, and sometimes can’t even afford to pay their Home Loan/Bond.

If you find yourself in this situation, what next? This article from Fin24: https://www.fin24.com/Money/Property/what-if-you-missed-monthly-bond-repayments-on-your-property-20180530 gives one option – put your house on the market as soon as possible, pay the proceeds from the sale towards the bond, and make an arrangement with the bank for any outstanding amount which the sale didn’t cover. However, is this really the best option? Selling one’s house is a major decision and, like most major decisions, there are many factors to consider, both positive and negative.

There are positives to choosing this option. It makes some sense to have the property on the market before the bond is too far in arrears. Why? Because the further in arrears the bond, the more interest accrues, and the greater the likelihood that the outstanding amount owed on the bond will be more than the purchase price. This would mean that you, the homeowner and bond-holder, will still owe the bank money after the property is sold, and will have to make an arrangement with the bank for settlement of this shortfall.

Another reason to consider selling is, as the article states, the longer you’re in arrears, the more likely the bank is to proceed with legal action and take judgement against you. Once that happens, the judgement is noted on your credit record, and there go your chances of being granted credit. Also, once the bank is granted judgement, their next step is to apply for an Order to auction the property. Once the property has been auctioned and the bank has received the purchase price, they will still hold you, the bond-holder, liable for any shortfall. Thankfully, recent amendments to the Supreme Court Act offer more protection to home-owners, as they require a more rigorous investigation by the Courts before allowing a property to be auctioned (thanks to Quintin Zimmerman of Liddle & Associates, and Michael Lombard of DeRebus Attorneys, http://www.derebus.org.za/amendments-of-rules-in-line-with-constitutional-rights-to-adequate-housing/), but a Writ of Execution against Immovable Property (giving permission for the property to be auctioned) may still be granted.

Then we get to the negatives.

Firstly, let’s assume that you do sell your house and repay your bond. Let’s even assume that you have no shortfall. That’s all good. BUT (and it’s a big “but”), you also have no place to stay. Which means that you’re either going to have to try and find another property to buy, and apply for another Bond, or look for a property to rent. How likely are is it that you’ll find something as good as what you had, and at a similar price?

Secondly, there are a number of additional costs to consider. Pagdens Attorneys have graciously made available some very useful information in this regard here: http://news.pagdens.co.za/2018/05/28/selling-your-property-take-note-of-all-the-costs-involved/

Thirdly, you may place your property on the market, but there are no guarantees as to how long it will take to sell. On top of that, there’s also the time that it takes before transfer can be effected. According to our resident property expert, Clarence from The Property Scout (whom you can find on-line here: http://www.thepropertyscout.co.za/homepage/ ), it can take 30 to 90 days to sell a property (the more expensive properties take longer), and the bank also requires 90 days cancellation notice in writing before they proceed with cancelling the bond. The good estate agents (like The Property Scout) give the bank notice of intention to sell as soon as they sign the mandate, to minimise the waiting period before transfer can be effected but, until transfer goes through, the home-owner is still liable for bond repayments and accrued interest.

So, what other options do you have if you’ve missed a bond payment, or are struggling to meet your debt obligations? It’s definitely worth considering the option of seeing a Debt Counsellor. Placing your property under Debt Review has many positives.

1. The bank – and all your other creditors – are legally obliged to negotiate with the Debt Counsellor to reduce your monthly instalments to an amount that you can afford (but will also still ensure that the outstanding debts is repaid within a reasonable period),
2. Placing the bond under Debt Review automatically restructures any arrears, and allows the Debt Counsellor to make a new arrangement with the bank for the entire outstanding balance,
3. Accounts which are placed under Debt Review are protected from legal action (as we’ve previously discussed here: https://creditbalancingservices.co.za/protection-of-assets/ ), so there’s little risk of you losing the house or having judgement granted against you.

If you HAVE missed one or more bond repayments, let’s not pretend that it’s something that one can just laugh off. You DO have some big decisions to make, but hopefully we’ve provided you with some information which will help you to make an EDUCATED decision, rather than rushing into action that you’ll regret later. To quote an old saying: “Act in haste, repent at leisure”.

BANDWIDTH: Getting what you paid for?

In today’s world, access to the “world-wide web” has become almost essential. Most people seem to have Wi-Fi or at least mobile data access at home. Our home is no exception. We recently signed up for a service provider’s offering of 10GB anytime data + 10GB “Night surfer” data on a monthly LTE contract. 10GB monthly sounded like a decent amount, but between mobile phone apps updating, part-time studies, after-hours work and internet browsing, it turned out to be quite easy to use up that amount of data. As a result, by around the 25th of the month, zero connectivity. Annoying, but one of those things that one has to accept. So, now to decide what to do about it. Living without connectivity for the last few days of the month wasn’t really an option, so we looked around to see what top-up packages were available. It appeared that the most cost-effective option was another 10GB + 10GB “Night surfer” data, which was valid for 30 days. So we took the plunge and bought the package, reckoning that it would at least boost the bandwidth that we had available for the following month.

By around the 25th of the following month, we had run out of bandwidth AGAIN, which REALLY didn’t make sense. Even disregarding the “night surfer” data, my rudimentary calculations told me that if my 10GB allocation had last me until the 25th of the previous month, I was averaging around 400MB per day. Therefore, assuming that our usage patterns hadn’t changed drastically (which they hadn’t), the 10GB which I had bought plus the next month’s allocation of 10GB should have been more than enough for the month, yet we had run out. Something was definitely not right, but how to trace the discrepancy? Also, we again had to deal with the immediate problem of no connectivity. Again, we bit the bullet and bought the same top-up package, but this time I monitored it more closely. As a result, we were able to work out what was happening.

Again disregarding the “night surfer” data, the 10GB which we had bought on the 25th (and which is only valid for 30 days, remember) gave us connectivity for the rest of the month. During that period, we used about 2GB, leaving a balance of about 8GB. Then, on the 1st of the new month, the new monthly allocation of 10GB became available. Cleverly (sneakily?), our router then stopped using the purchased bandwidth, and started using the normal monthly bandwidth. This meant that the 8GB of purchased data just stayed there, unused, while we used the monthly 10GB allocation. And therein lies the problem. At our average usage, our 10GB monthly allocation runs out by the 25th of the month. BUT, the 8GB that we have left over from our purchased data EXPIRES on the 25th as well. Effectively, therefore, the service provider is selling us 10GB, but only allowing us to use 2GB and just leaving the balance to expire.

We went to one of the service provider’s stores to challenge this. The initial response was that we were told (with a rather superior sneer) that the system doesn’t work like that, and it would first use the purchased bandwidth before reverting to the normal monthly bandwidth. When I retorted that I had monitored the usage, and confirmed that the unused portion (8GB) of the purchased bandwidth had remained static until the expiry date, the sneer disappeared, and they logged a query with the client services call centre. To their credit, the call centre did call back but, frustratingly, I had to have exactly the same argument with them. After some back-and-forth, the consultant claimed that my line was “breaking up”, and that we therefore couldn’t resolve the issue. I then went to another store, where I got a similar sneer to the one from the first store. After giving the same retort (and again seeing the sneer disappear), I was told that there must be a fault in the setup and that they would log a query with the technical support division, which they did. Needless to say, there was no offer to make restitution for the lost, “expired” bandwidth.

So, what’s the point of this story? Well, it’s two-fold:

1. If this was happening to us, I’m confident that it’s not an isolated occurrence. I hope that, by posting this, it could give others some insight, and save some unnecessary bandwidth purchases, and
2. Service providers (well, their staff, anyway) often respond to challenges and queries by making the complainant feel that they’re just being stupid. To my mind, that’s a bullying tactic, and I hope that this story will prevent others from being intimidated, and stand up for their rights.

We as the buying public are asked to pay for products and services, which is fair enough. However, it’s also only fair that we get what we’re paying for (not just 20% of it).

Postscript: Having drafted this post, we decided to withhold posting it to give the service provider a chance to respond.
A couple of days later, I received an SMS stating that the issue had been resolved, and I could phone the Telkom call centre for more information. Upon doing so:

1. It took 51 minutes (!) to get to speak to a consultant;
2. The system had only been updated to state that the issue had been resolved, so the consultant had to ask me to hold AGAIN while he tried to get more information;
3. The additional information which he finally managed to obtain was that Telkom’s system is set up to work exactly as I’d described (i.e. to stop using the purchased bandwidth as soon as the monthly allocation became available), and there was nothing that could be done to change this.

So, as regards the reason for this story, our first point (i.e. that our experience was not an isolated occurrence) has been proven correct, and leads to another point: Be aware that when you purchase additional bandwidth from Telkom, you may only be getting a fraction of what you’re paying for. It also goes to show that superior sneers don’t always equate to superior knowledge!

Protection of Assets

Let’s be realistic: Even if your Home Loan or Vehicle Finance account is in arrears and the credit provider (bank or vehicle financier) is sending messages and letters which are getting more and more threatening, entrusting your valuable asset to a Debt Counsellor can still be a scary prospect. Can the Debt Counsellor really safeguard the house or car? Aren’t there stories about people who’ve applied for Debt Review and have still lost their houses or vehicles?

Firstly, let’s answer the most important question: “Can a Debt Counsellor really safeguard my house and/or car? YES, a Debt Counsellor can absolutely safeguard a house or car by placing the account under Debt Review. How? By relying on the National Credit Act, in which Section 88(3) says: “A credit provider who receives… notice in terms of Section 86(4)(b)(i) may not exercise by litigation or other judicial process any right or security under that credit agreement…”

What does this legal-speak actually mean? Let’s break it down:

• It mentions Section 86(4)(b)(i), which is the section of the National Credit Act that states that consumers can apply for Debt Review, and that the Debt Counsellor must then notify their creditors and the credit bureaus;
• It goes on to say that, once this has been done, the creditors “may not exercise by litigation or other judicial process any right or security under that credit agreement” i.e. they may not proceed with legal action.

Are there any exceptions to this?  Well, yes. Section 86(2) says: “An application…may not be made…and does not apply to a particular credit agreement if, at the time of that application, the credit provider under that credit agreement has proceeded to take the steps contemplated in Section 130 to enforce that agreement.” If we translate this into everyday English, it’s saying that an account (including a Home Loan or Vehicle Finance account) cannot be placed under Debt Review if the credit provider has already (i.e BEFORE the client has applied for Debt Review) proceeded with legal action. This means that the credit provider just have enrolled the matter at Court, and that a Summons has been issued. Aside from legal action having commenced, though, the creditor has no other grounds to prevent the account from being included in Debt Review and legally protected. It doesn’t matter how far in arrears the account is, how large the outstanding balance is or that they’ve handed it over to their “legal department”.

So, if placing a Home Loan or Vehicle Finance account under Debt Review safeguards it, why the stories of Debt Review clients who have lost their houses or vehicles? Well, there are certain requirements which the Debt Counsellor has to fulfil in order to ensure that the legal protection of the asset remains in effect.

• Firstly (and this may seem so obvious as not to need mentioning, but anyway…): the Debt Counsellor must notify the creditors of the Debt Review application, which is done by sending a Form 17.1. If this is not sent to the creditors, they could proceed with legal action.
• Secondly, the Debt Counsellor must (within 30 business days of the client applying for Debt Review) confirm to the creditors whether or not they’ve assessed the client to be over-indebted. This is done by sending a Form 17.2.
• Thirdly, within five business days of sending the Form 17.2, the Debt Counsellor must also send a Restructuring Proposal to the creditor(s). The Debt Counsellor also has a duty to ensure that this proposal is “reasonable”. For example, it would not be reasonable to offer R100.00 per month on a Home Loan with an outstanding balance of 1-million Rand, or to propose that it’s going to take all of 25 years to pay a Vehicle Finance account in full. Although sending an “unreasonable” proposal or one which is not accepted by the creditors does not terminate the Debt Review, it does mean that there’s a likelihood of creditors opposing the Application. This means that the Magistrate hearing the Application has to decide whether or not to grant it. If the decision is not to grant, the Debt Review is then terminated and the client no longer legally protected.
• Fourthly, the Debt Counsellor should ensure that the matter (i.e. the Debt Restructuring Application) is enrolled at Court within 60 business days of the original Application date. This is especially important if the creditor(s) have not accepted the Restructuring Proposals, as they then have the right to terminate the Debt Review (and withdraw their account) after the 60 business days have elapsed. Once the matter is enrolled at Court, however, they may not terminate their account.
• Fifthly, the Debt Review client must make their agreed payments. Failure to do so means that they have breached their Debt Review process, and creditors can then immediately proceed with legal action.

In summary, then, a Debt Review client who has a consented Proposal or granted Court Order and is making their payments in accordance with this Proposal or Order is absolutely protected and will not lose their property or vehicle.

Accounts & Interest

There are a few myths and misconceptions about interest; Hopefully, Credit Balancing Services can Cut through the Confusion to bring Clarity.

MYTH 1: No interest will be charged on accounts which are under Debt Review.
Placing accounts under Debt Review allows the Debt Counsellor to RESTRUCTURE the accounts. However, the terms of the original contract between the credit provider and the client are still in effect. Therefore, if the original contract entitles the credit provider to charge interest, they still have the right to charge that interest at the agreed contractual rate if the account is placed under Debt Review. In practise though, most creditors will consent to reduced interest rates when the Debt Counsellor proposes this (except as regards “secured” credit agreements such as Home Loans and Vehicle Finance).

MYTH 2: If someone goes under Debt Review and pays off all their debts, they may get a call afterwards claiming that there’s still interest outstanding that they have to pay.
The Debt Restructuring proposals which a Debt Counsellor will draft will make include a provision for interest. This may be at the contractual rate or a lower rate which has been agreed between Debt Counsellor and creditor.

MYTH 3: If my account was in arrears and I make a payment arrangement (or someone – other than a debt counsellor – makes one on my behalf), it automatically means that no further interest will be charged on the account.
When a client applies for credit and signs a contact with a credit provider, this is a legally binding agreement. The terms of the agreement can be changed if both parties agree (which should be confirmed in writing). If a reduction in interest is not specifically agreed to, the contractual interest rate remains applicable. There are companies (who are not registered Debt Counsellors who are advertising that they will negotiate reduced instalments for clients. The danger is that they DON’T negotiate reduced interest rates. This means that, although the client is paying less, their payments are not covering the monthly interest which is accruing. Consequently, the outstanding balance actually INCREASES every month.

MYTH 4: If I’m unemployed or a pensioner and I inform my creditors that I can no longer afford to pay my accounts, they will stop charging interest on my outstanding balance.
If a client has applied for credit and signed a contract with the credit provider (including a specified interest rate), the fact that the client’s circumstances have changed doesn’t change the terms of the contract. The creditor is therefore entitled to continue charging interest on any outstanding balance.

MYTH 5: Creditors (or collection agents) can keep adding interest on old accounts forever.
Fortunately for consumers, there are laws which protect against interest accruing beyond reasonable limits. Section 103(5) of the National Credit Act limits the amount of interest that can be added to an account which is in default. The Law of Prescription prevents creditors or collection agents from collecting on accounts which have been dormant for more than three years. The maximum rate of interest which a creditor can charge on a specific credit agreement is limited by the Regulations associated with the National Credit Act.
Please contact us if you feel that your rights under these laws are not being respected.

In fairness to credit providers, offering credit to clients is a service they provide, and comes at a cost to them. The interest they charge is the remuneration to which they are entitled for this service. However, it’s also important for us as consumers to understand our rights, and not be exploited or abused by service providers.

Debt Review: A Lifeline

It was pleasant to read this article on Fin24: https://www.fin24.com/Money/Debt/debt-review-a-lifeline-for-borrowers-committee-hears-20180215 and see Ms. Gibson’s acknowledgement that “Debt Review does provide a lifeline”. On the other hand, it’s somewhat disappointing that, although the article quotes Ms. Gibson as saying that there are shortcomings/weaknesses in the Debt Review process, it doesn’t specify what those are.

Anyway, this may be a good opportunity for us to highlight a few of the positive aspects of Debt Review.
* Debt Review protects clients from legal action. This includes protecting properties from repossession and auction, vehicles and furniture from repossession, and salaries from deductions (often referred to as “garnishees”);
* Debt Review focusses on affordability. This means that, when a client applies for Debt Review, it is our priority as Debt Counsellors to ensure that monthly needs and living expenses (including food, transport costs, accommodation costs, education costs and even expenses such as airtime, policies and family commitments) are provided for;
* The affordability consideration also encompasses the way that the Debt Counsellor’s fees are made provision for within the process. According to recommendations issued by the National Credit Regulator in August 2017, the maximum upfront fee which a Debt Counsellor can charge is R300 (comprised of a R50 Application Fee and a R250 Administration Fee for loading a client’s application in the prescribed form and notifying creditors accordingly); All other fees are included in the clients’ monthly Debt Review payments;
* Although it is not specifically stated in the National Credit Act (and is therefore not a legal requirement), most creditors will renegotiate interest rates on accounts which are under Debt Review. This benefits the Restructuring Proposals which a Debt Counsellor drafts, and reduces the term within which the outstanding debts are settled;
* Once a client has paid their debts via Debt Review, their credit records are cleared. It is our practice to verify the settlement and closure of the clients’ accounts by obtaining Paid-Up letters from the creditors and forwarding these to the credit bureaus with the Clearance Certificate. This ensures that the credit bureaus record the accounts which were under Debt Review as “paid in full”, and expunge the record of Debt Review from the client’s credit profile (as stipulated in Section 71 of the National Credit Act, i.e. they are legally obligated to do so).

A final positive thought: Debt Counsellors are impartial – we are neither fighting for the client, nor for the credit provider, but are fulfilling a statutory function. As a consequence, we are able to assist BOTH. Consumers get their lifeline, and credit providers receive payments for outstanding debts which they may otherwise either have to write off or try and recover by way of legal action, thereby incurring additional legal or collections costs.

If you’re in a situation where you feel that Debt Review may help you, it would be our pleasure to do a free, no-obligation assessment and propose a solution. Our details are on our “Contacts” page.