Understanding the debt review process

In these difficult economic circumstances, you may find yourself in a position where you are unable to pay your debt. The National Credit Act makes provision for debt management in the form of debt review by making an application to the court to restructure the payment schemes of all your creditors. It may be a good way to recover from over-indebtedness, keeping in mind the importance of what debt review entails.

Debt review is a way of managing over-indebtedness by making an application to the court in terms of section 86 of the National Credit Act 34 of 2005 (hereinafter the NCA). Although it may seem like a very favourable option when the burden of debt becomes too heavy, there are a number of things to consider.

A debt counsellor has to consider the financial position of a consumer by the prescribed form, after which he/she may declare the consumer over-indebted. This is followed by an application made at court to place the consumer under debt review by means of a court order. Such an order entails inter alia that the repayment instalments of the consumer’s debt to his/her creditors are restructured to be more affordable. Consequently, the repayment period is extended and settling said debt will take considerably longer.

It is important to be aware that there are certain fees applicable to debt review applications. These fees are payable by the consumer and include inter alia application fees, rejection fees, restructuring fees, legal fees and monthly administration fees with the payments made according to the debt review order.

An order placing a consumer under debt review has numerous effects as stated in section 88 of the NCA. A considered positive effect of a debt review order could be the breathing space it creates by the re-arrangement of the payment instalments. Creditors will not be able to sue the consumer after receipt of a notice of an application of debt review and when the application is made an order of the court, repayment instalments will be lower than the initial instalments, allowing the consumer to attend to his/her basic needs.

The negative aspects are that the consumer subject to a debt review will not be able to enter into another credit agreement and the credit bureau will list the consumer as being over-indebted.

In the event that a debt review court order has been granted against a consumer or the creditors have made an agreement with the consumer for the re-arrangement of credit obligations, the consumer must fulfil all obligations under the agreement or the court order before any further credit agreements may be entered into.

After the full obligations by the agreement or court order has been fulfilled, the debt counsellor will issue a clearance certificate to certify that the consumer is no longer indebted. Only upon issue of the clearance certificate may the consumer enter into a new credit agreement.

In the matter of Van Vuuren v Roets and Others at the Gauteng Local Division, the applicants in the case were under debt review and their financial positions improved to the extent that they could afford to pay the instalments as per their initial credit agreements. However, they could not settle the amounts in full and the debt counsellor refused to issue a clearance certificate.
The court ruled that it does not have the authority to release a consumer from debt review until the full obligations have been met. In the case where there is a debt review court order, the consumer is bound by the re-arrangement order until full settlement.
Where an application is still pending a court hearing, the consumer can present the improvement of financial position, of which the magistrate will reject the order for debt review in accordance with the NCA.

The consumer has to weigh the pros and cons of being placed under debt review. Essentially, this constitutes deciding between the latitude regarding the repayment of debt together with the right not to be sued, as opposed to being restricted from entering into new credit agreements until full settlement of the debt review agreements. Nothing prevents a consumer to settle the re-arranged debt in a shorter period by increasing their payments.

Reference List:

• National Credit Act 34 of 2005
• Janse van Vuuren v Roets and Others, Nel v Roets and Others (37407/2018) [2019] ZAGPPHC 428

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)