Debt Review Repayment Period

We were recently asked : Can a Debt Review Court Order specify the exact period for which a client must remain under Debt Review? Or, in other words, if a Debt Restructuring Order states that the client should pay their Debt Review instalment for 60 months, can the client automatically stop paying once he/she has made 60 monthly payments?

Herewith our answer :
When a Debt Review application is placed before the Magistrates Court, the Court may only make an Order which it is empowered by law to make. We therefore describe the Magistrate as a “creature of Statute”. The decisions which a Magistrates Court is empowered to make as regards a Debt Review Application are conferred upon it by the National Credit Act, specifically (in this case) Section 86(7)(c)(ii). This section ONLY allows the Court to :

• reduce monthly instalments and extend the period over which the balance is repaid and/or
• postpone the dates on which payments are due ;

This implies that the Court does NOT have the power to :

• Stipulate the BALANCE which is to be repaid, or
• Stipulate the exact PERIOD over which the balance is to be repaid.

Strictly speaking, the Court doesn’t even have the power to change the interest rate at which the outstanding debt is repaid. This has resulted in some contention, as many creditors are prepared to consent to reduced interest rates when accounts are placed under Debt Review. Usually the Courts confirm this as a “Consented Arrangement” within a Debt Review Order, but some Magistrates have been known to refuse to grant Orders with reduced interest rates, stating that the Act does not empower them to do this.
Most Debt Review orders (including those drawn up by our Attorneys, Liddle & Associates) will state that the instalments are required to be paid until the outstanding balance is settled in full. This implies that, although the Debt Restructuring proposal will include an estimate over which each debt/account is to be repaid, the significant stipulation is the TOTAL to be repaid, NOT the repayment period.
It would also not be fair to creditors for the Court to stipulate the exact period over which a debt is to be repaid. Some reasons for this are :

• Debt Restructuring and Repayment Proposals are based on a cascading schedule (i.e. as one account is settled, that instalment “cascades” to the other creditors, so their instalments increase to settle their balances more quickly) ; However, there will always be unavoidable variations in the cascade, which make it impossible to predict the exact repayment term ;
• Interest rates may not be fixed i.e. could be linked to the Prime Lending Rate (which is linked to the Repo Rate) If the Repo Rate changes after the Debt Counsellor has drafted the Debt Restructuring Proposal, this could affect the Interest Rates, which in turn affect the Repayment period ;
• The Restructuring Proposal assumes an ideal world where the Debt Review client always pays on time ; In practice, this is seldom the case – a payment which is even one day late affects the interest calculations, which can affect the Repayment Term.

As Debt Counsellors, it is therefore part of our duties to confirm with creditors that the full outstanding balance of an account has been paid in full before stopping the distributions to that account. The proposed period is therefore a guideline (which should be reasonably accurate (i.e. to within a month or two), but the key proviso is normally that the outstanding balance of any account under Debt Review is to be paid in full.