Tag: <span>debt review</span>

News

Withdrawing from Debt Review

We occasionally receive enquiries from people who had previously applied for Debt Review, but for one reason or another want to withdraw. In March 2015, the National Credit Regulator issued guidelines in this regard (available to view here : http://www.ncr.org.za/documents/Withdrawal_guidelines/Withdrawal%20from%20debt%20review%20guidelines.pdf ).
These guidelines brought together the stipulations of the National Credit Act and Case Law/Legal precedent to clarify the procedure for withdrawing from Debt Review.

Without “re-inventing the wheel”, we thought it might be helpful to simply list some of the main points of these guidelines.

  • Clients who have applied for Debt Review can no longer just withdraw voluntarily at any time. Voluntary withdrawal is only permitted BEFORE the Debt Counsellor has issued a Form 17.2. This form confirms that the client is indeed over-indebted. The Debt Counsellor has to make this finding within 30 business days of the client’s application. Once this finding has been made and the client confirmed as being over-indebted, they can no longer decide that they don’t want to be under Debt Review.
  • For clients who have a Home Loan under Debt Review, these guidelines have now confirmed that they don’t necessarily have to remain under Debt Review until the Home Loan is paid in full (which could take 20-30 years or, in extreme cases, even longer). As soon as all other debts are settled and the Home Loan is no longer in arrears, these clients can exit Debt Review. But hang on, you may be asking yourself ; If my Home Loan has been under Debt Review and receiving a lower instalment, surely it’s just been going further and further into arrears? What are the chances of it ever NOT being in arrears? A good question, but there’s one factor you’re not considering. Most Debt Review clients have other accounts (besides their Home Loan). Accounts with lower outstanding balances could be paid off and settled relatively early in the process. Therefore, the instalments which were being paid to these creditors can be re-allocated to the remaining accounts, which thus reduces their outstanding balances more quickly (known as the “cascading payments” effect). As more accounts are settled, more funds are re-allocated to the Home Loan account. It’s therefore entirely feasible that the Debt Review instalment being paid to the Home Loan account could eventually be MORE THAN the contractual instalment. When this happens, each payment reduces the arrear amount, until the Home Loan is no longer in arrears.
  • Clients who are no longer eligible to withdraw from Debt Review but stop making their Debt Review payments could be placing themselves in a difficult position, even if they eventually settle their outstanding accounts directly with the creditors. The reason for this is that the PDA normally allocates a percentage of a client’s payment (initially 5%, dropping to 3% after two years’ worth of payments i.e. 24 monthly payments or 104 weekly payments) to be paid to the Debt Counsellor as an “Aftercare” fee. This fee is intended as payment for the work that the Debt Counsellor does on the client’s accounts until they are all settled and a Clearance Certificate issued. If the Debt Counsellor is not receiving this fee, either through the PDA or directly from the client, they are entitled to suspend their services. The Debt Counsellor may therefore not reconcile the account to confirm that it is settled, and may also not be prepared to issue the Clearance Certificate, even if all accounts have been settled in full. The consequence is that the Credit Bureaus will continue to record the client as being under Debt Review, thereby blocking their access to any additional credit.

Debt Review is often very beneficial to over-indebted consumers, but there are people who have regretted applying because they hadn’t considered all of the effects and implications – definitely a time when it pays to “look before you leap”. As always, anyone who has questions or would like more information is welcome to contact us – simply click on the “Contact” section of our website for the relevant information.

News

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.

News

When is a Judgment not a Judgment?

We recently had a client who came to us because he’d received a Section 129 letter regarding his Home Loan [please look at our previous post (on our News page) regarding Section 129 letters]. We placed him under Debt Review and informed the bank of this (by means of a Form 17.1). From this point, this story becomes a bit of a “good news/bad news” comedy show.

BAD NEWS : The bank responded with correspondence stating that the account could not be placed under Debt Review because they (the bank) had already obtained JUDGMENT in their favour against the client. This was bad news for us and the client because the law is very clear that, if judgment HAS been granted on an account, that account cannot be placed under Debt Review. However, IF there was already a Judgment in place, it surely wasn’t necessary for the bank to instruct Attorneys to send a Section 129 letter? As is our standard practice, we requested evidence of the judgment from the bank. We also contacted (telephonically) the Attorneys who had issued the Section 129 letter, and…
GOOD NEWS : The Attorney tells us that no Judgment has been granted as yet, but…
BAD NEWS : The Bank replies via e-mail to say that Judgment has been granted in 2012!
MORE BAD NEWS : The client calls to say that he has now also received a Summons from the Bank’s Attorneys. We ask the client to drop the Summons at our office, which he does. The Summons is dated AFTER the date of our Form 17.1, which is…
GOOD NEWS, because the law is also clear that a creditor cannot proceed with legal action on an account after that account has placed under Debt Review. However, there is still…
BAD NEWS, because there are conflicting stories regarding the legal status of this account. To try and clarify the situation, we called the Bank’s legal department. The Bank’s legal representative confirmed that the Attorneys who had issued the Summons had advised them of the client’s Debt Review application, and that they were reviewing the matter.
GOOD NEWS : The following day, we received a Certificate of Balance from the Bank confirming that the account was now included under Debt Review.
MORE GOOD NEWS : We e-mailed the Attorneys, requesting confirmation that the Summons would be withdrawn ; They confirmed by reply e-mail that the Bank had instructed them to withdraw and close the file.

We have encountered similar situations before, so this is not even an isolated incident. For clients, it makes it very hard to know who to trust, especially when the mighty Bank is telling you one story and the lowly Debt Counsellor is telling you something else. Forgive us if we appear smug, but hopefully this will show that sometimes the Debt Counsellor DOES know what they’re talking about!

News

Debt Review vs Administration

As Registered Debt Counsellors, we’re probably biased, but we genuinely believe that Debt Review is usually the best mechanism available for resolving over-indebtedness. Before the National Credit Act was passed (in 2007), the only options for consumers who needed relief from their debt burden were Sequestration (also known as Bankruptcy) – which has serious long-term consequences – or Administration. Here are five reasons that we feel that Debt Review is a significant improvement on Administration :

  1. Debt Review doesn’t just aim to make a consumer’s debt repayments more affordable (although that IS a major focus) ; It also aims to assist the client to become completely debt-free. Debt Counsellors can generally re-negotiate interest rates and get them significantly reduced. Because Administration and other debt resolution mechanisms can’t do this, clients who are paying lower instalments could end up with ever-increasing balances, and never actually pay the debt off. Also, once a client’s debts have been settled via Debt Review, the Debt Counsellor will issue a Clearance Certificate and update the Credit Bureaus accordingly  ;
  2. Debt Counselling fees (as regulated by the National Credit Regulator) are lower than the fees which Administrator are allowed to charge. Both are a percentage of the client’s payments but, whereas Administrators can charge 12,5%, a Debt Counsellor’s fee is only 5% ;
  3. Administration can only deal with debts up to a maximum value of R75 000, whereas Debt Review has no upper limit, and can restructure (and protect from legal action including repossession) Home Loans, Vehicle loans, large Personal Loans and Credit Card debts, etc. ;
  4. Administrators are only obligated to make payments to creditors every three months, whereas Debt Review distributes payments every month. This results in less interest accruing between payments, thereby reducing the outstanding balance more quickly ;
  5. Debt Counsellors are monitored and regulated by the National Credit Regulator, while there is no monitoring body for Administrators. There is therefore the danger of less accountability, and greater difficulty in resolving problems and complaints for clients under Administration ;
  6. A good Debt Counsellor will also investigate other factors (such as Reckless Lending and Prescribed Debt), which could result in clients not being liable for certain debts.

We strongly believe that our National Credit Act has placed South Africa at the forefront of consumer credit protection world-wide. Even first-world countries (such as the U.K.) are only now waking up to the need for this type of legislation (to govern maximum interest rates, provide options for over-indebted consumers, etc.), whereas South Africa passed this Act eight years ago.