Considering Applying for Debt Review? Here is what you should know

I recall being requested by one of my colleagues to assist him during a consultation with an isiZulu-speaking client who he was assisting on a pro-bono basis.

He required my assistance to translate his concerns to the client so that she understood her position as she was under debt review and what options were available to her. Although I am not a certified translator, I gladly obliged to the request.

The client had found herself deep in debt with secured loans and unsecured loans like many other South Africans however as the consultation progressed it quickly became apparent that she did not understand what being under debt review meant and what its implications were.

The client was having trouble in obtaining a much-needed loan from a registered credit provider. The loan was required to pay off her colleagues who she had borrowed money from. Her application for the loan had been declined by the credit provider and the reason was that she was under debt review, it had been explained to her by the credit provider that the only way she could secure the loan is if she was no longer under debt review.

Her situation had become so desperate that she had even stopped going to work to avoid her colleagues and she accordingly needed assistance to “get out of debt review” so that she could re-apply for the loan and return to work.

I watched her face fill with disappointment as I translated to her that that there was nothing we could do to assist her until she had expunged all her debts except her long term debts and also that until such time as her debts were expunged, a court of law could only come to her aid after she had sought the assistance of the National Consumer Tribunal, it being the forum of first instance in terms of the National Credit Act “NCA”.

Debt review under Section 86 of the National Credit Act, 34 of 2005 is like a revolving door. Once you are in, you are in. A consumer under debt review can no longer access further credit until they recover from their financial impasse. A debt review counsellor will negotiate the repayment terms of the credit loan on behalf of the indebted consumer and often the repayment amount is reduced whilst the repayment period is extended.

This allows the consumer to pay off the loan amount over a longer period of time, making it more difficult to exit debt review unless the consumer can satisfy the loan amount to the satisfaction of the debt counsellor. Only then will the debt counsellor issue you with a clearance certificate to expunge your record with the credit bureau in terms of Section 71 of the NCA.

The above principle was well illustrated in the case of Kamogelo Issac Phaladi vs Asia Lamara [2017] ZAWCHC 20480/2017. In this case, the court reiterated the principle that once a debt review has been confirmed whether by way of court order in terms of Section 87 (1) (b) or by voluntary debt rearrangement in terms of Section 86 (8) (a) of the NCA, the only way to end it’s effect is in terms of Section 71 read with Section 88 (1)(c) and if that fails, then the consumer is to approach the National Consumer Tribunal.

So, in August 2019, when President Ramaphosa signed the National Credit Amendment Bill into law, also known as the controversial “Debt Relief Bill”, I could not help but think of this client.

The aim of the National Credit Amendment Act 7 of 2019 is to allow over indebted South Africans access to debt review at no cost. Such relief is aimed at consumers who earn not more than R 7, 500.00 and the unsecured loan does not exceed R 50, 000.00. Unsecured loans are those loans that individuals are not required to put up any collateral to obtain the desired loan.

If these requirements are met, the consumer’s debt is suspended for 24 months, partially or in full, until the financial situation of a consumer has improved. If within the 24 months, the consumers situation does not improve, then the debt can be extinguished provided the consumer qualifies for such relief.

Before accepting an application for debt review, Debt counsellors have a duty to explain to consumers in simple terms the time periods involved when a consumer applies for such relief in order to avoid situations like that of our client. It is also the duty of the debt counsellor to consider if those currently applying for debt review qualify for the new relief as provided for under the Amended Act.