Your financial situation can change overnight because of an unforeseen crisis, such as retrenchment, a life-threatening illness or an injury in a motor accident, making it difficult to keep up your debt repayments. What are your choices in such a situation?

Wikus Olivier, a debt management expert at debt counselling company DebtSafe, says there are two routes open to you if you can’t pay for goods you have bought on credit: voluntary surrender or repossession.

But before you are faced with these choices, Olivier suggests that you first talk to the credit provider to see whether the term can be extended, which will reduce your monthly instalment. An extended term may also result in a lower interest rate.

Voluntary surrender

Surrendering your goods voluntarily can be a show of good faith, Olivier says.

Voluntary surrender may be an option under two scenarios:

• Your repayments are up to date, but you want to return the goods, because you know you won’t be able to maintain the repayments in the future; or

• You are already behind with your repayments and want to give back the goods.

If your repayments are up to date, but you know you won’t be able to maintain your payments, section 127 of the National Credit Act states that you can give a written notice to the credit provider indicating that you want to return the goods. Within five business days, you must voluntarily surrender the goods to the credit provider’s place of business, or any other place as agreed on with the credit provider.

Within 10 business days of receiving the notice, the credit provider must give you an evaluation (written notice) setting out the estimated value of the goods, Olivier says. The credit provider will typically sell the item at an auction.

There is no guarantee that the credit provider will be able to sell the item for what you still owe on it. You are therefore held liable to pay the shortfall after the sale.

If the item is sold for more than what you owe, the credit provider must pay the difference over to you.

If you are unhappy with the value given by the creditor, Olivier says, you can withdraw the notice you have sent the credit provider and resume possession of the item.

You may feel you could sell your car or property privately and obtain a better price than the credit provider would be able to get.

If you are in arrears with your repayments, you can voluntarily surrender your goods under section 127. However, in this instance there is no way out after signing the voluntary agreement; you will first have to bring your payments up to date, Olivier says.

According to Olivier, many credit providers prefer the voluntary process to get an asset back. But you need to be aware that you are under no obligation to give up the item.

Some creditors mislead consumers into thinking that the item is being repossessed, whereas the creditor is presenting them with a form to sign to surrender the asset voluntarily. If a creditor hands you a form or document that is not a court order, it is most likely an agreement to surrender the asset voluntarily.

“Don’t give into people’s threats when they want to take possession of your goods,” Olivier says.

Remember: if your payments are up to date when you sign a form voluntarily surrendering your goods, you may unconditionally withdraw the notice you signed. In contrast, there is no way out after signing a voluntary agreement if you are in arrears with your instalments.

Repossession

Repossession is a statutory process that can have a negative effect on your credit score and applications for credit in future, Olivier says.

A legal repossession is always preceded by a court order. If your creditor does not want to negotiate with you and obtains a court order for the repossession of your goods, a summons has to be served on you. You then have an opportunity to present your case in court.

For many people, going to court is a terrifying ordeal, and they have a tendency not to attend, Olivier says. But if you do not appear in court, it is far easier for the creditor to obtain a judgment in its favour.

If you do go to court, you are able to present a defence, which would be best argued by a lawyer.

Debt counselling

Neither voluntary surrender nor repossession should be used lightly, and Olivier suggests that you consider debt counselling if you are battling to repay your debt.

A debt counsellor will assess whether you are over-indebted or debt-stressed, and, if you are eligible, will place you under debt review (search for “Debt review process step by step” on persfin.co.za).

“As soon as you are under debt review, you are protected from your creditors. And through debt counselling you get enough breathing space to pay off your debts and continue with the important things in your life – not to mention the clean credit record you are able to walk away with in the future,” Olivier says.