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Debt counselling also known as Debt Review is a process which was birthed by The National Credit Act (“the NCA”) which is intended to assist over- indebted consumers to manage their debt. The process is facilitated by a Debt Counsellor, who must be registered with the National Credit Regulator (“the NCR”).

How it works

 

Choosing a Debt Counsellor

If you are considering Debt Counselling, it is imperative that you appoint a reputable Debt Counsellor.  Be sure to request a copy of the Debt Counsellors registration certificate to confirm his/her credibility.

The NCR regulates the fees which the Debt Counsellor may charge you. Your Debt Counsellor may not charge more than the regulated fees.

 

Notification of Creditors

The Debt Counsellor will then gather all the necessary information from you regarding your household expenses and monies owed to creditors.  It is important to be open and honest with your Debt Counsellor for the process to work.

Debt Counselling applies only to debts resulting from the granting of credit in some form, such as your bond, car repayments, credit cards, store accounts or loans. Other kinds of debt, not involving credit, such as overdue school fees, telephone accounts, etc.  are not part of the Debt Counselling process but are taken into consideration when calculating your day to day expenses.

The Debt Counsellor then informs your creditors that you have applied for Debt Counselling. It will then be determined whether you are actually “over-indebted”.  Being over-indebted simply means that the balance remaining from your income less your household expenses is insufficient to meet the monthly instalments of your creditors.

If it is found that you are “over-indebted”, the Debt Counselling process commences, and the Debt Counsellor informs your creditors. If the Debt Counsellor determines you are not “over-indebted”, the process is terminated.

 

Budget and proposal to creditors

After receipt of notice of your intention to apply for Debt Review your creditors within 5 days must provide your Debt Counsellor with certificates of balances which will contain the outstanding balances, interest rates and monthly instalments on your accounts. Your Debt Counsellor then drafts a budget, based on your income and expenses and the debt owing to your creditors. The proposed budget is designed by your Debt Counsellor to ensure that the repayments you undertake are more affordable for you as opposed to your contractual obligations. This budget forms the basis of an offer put to your creditors.

 

Agreement with creditors

Your Debt Counsellor will present to you a draft agreement to be proposed to your creditors. This agreement contains the terms of the repayment plan recommended by your Debt Counsellor.  Once you have approved the proposal, your Debt Counsellor will present it to your creditors, who will either agree to the proposal or make a counteroffer.

Once all the parties agree, the proposal is signed and formalised by the NCR, or by a court order. If the parties cannot reach an agreement, the matter will be referred to a Magistrate who decides if the offer is suitable.

 

Defaulting on payments during the Debt Counselling process

The amounts payable to creditors in terms of the new proposal will come into effect and your Debt Counsellor who is contracted to a Payment Distribution Agent will send the instruction to them to collect the debit order from you on a monthly basis. The Payment Distribution Agent will distribute the amounts payable to your creditors on your behalf.

If you default on your payments to a credit provider, they can withdraw from the Debt Counselling process and sue you for the debt. Similarly, if your Debt Counsellor does not finalise the process within the prescribed time, a credit provider can sue you for the debt.

 

Termination of the Debt Counselling process

You are only permitted to terminate Debt Counselling before the finding that you are “over-indebted”. In this case, you will return to paying your creditors in terms of your original agreement with them. However, once you have been issued with a Debt Counselling order by a court, you can only withdraw from Debt Counselling by order of a court.

A Debt Counsellor can withdraw his/her services should you breach the terms of the Debt Counselling agreement. However, he/she may not terminate the Debt Counselling Agreement.  You can request a transfer to a different Debt Counsellor, provided you pay your first Debt Counsellor’s fees.

 

Rehabilitation after debt counselling

If you have fully satisfied all your payment obligations under the Debt Counselling agreement with the exception of your home loan, your Debt Counsellor must issue you with a Clearance Certificate (Form 19).  Once you have the Clearance Certificate, credit bureaus must clear your credit record, and you will be able to apply for credit once again.

 

Protection of your assets

Being under Debt Review may prevent your home or vehicle from being repossessed or sold by your bank. If you are under Debt Review and you receive a letter of demand from your bank, the law prevents the bank from selling your home or repossessing your vehicle.

If you are not yet under Debt Review at the time you receive a letter of demand, the law allows you ten working days to obtain the services of a Debt Counsellor. He/she will be able to prevent the bank from seizing your assets.

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