This article was first published in the third-quarter 2013 edition of Personal Finance magazine.
This is how the debt review process is supposed to work. If you enter into debt counselling, you should use this as a checklist to keep abreast of the process:
1. When you apply for debt counselling, you will have to fill out an application form, called Form 16, which you submit, together with all your credit agreements, to a debt counsellor.
2. The first thing the debt counsellor does is assess whether you are over-indebted or debt stressed, and whether or not your creditors were reckless in granting you credit.
3. The debt counsellor has 30 business days, from the date of your application, in which to make this determination.
4. Within five business days of accepting your application for debt counselling, your debt counsellor must inform all your creditors and the credit bureaus of your application. The debt counsellor does this by sending your creditors a prescribed form (Form 17.1) and calling on them to issue a certificate of balance (which is a “certified notice of the balance of a customer’s account, and accrued interest and charges, at the close of business on a specific date”).
5. So that you continue to pay your creditors throughout the process, your debt counsellor will draw up an interim repayment plan, which he or she must submit to a registered payment distribution agency (PDA).
6. During the first 60 business days from the date of your application to be placed in debt counselling, legal action may not be taken against you in respect of debts that are “under review”. This means that if the credit provider has not already proceeded with legal action against you, you have two months in which to negotiate a payment arrangement. But if your creditors have already begun taking action against you in respect of certain of your debts, you don’t enjoy this protection, and these debts can be excluded from debt counselling.
7. Within five business days of receiving a Form 17.1, your creditors are required to provide your debt counsellor with certificates of your account balances. This information helps the debt counsellor to determine whether or not you are over-indebted and to conduct an affordability assessment. The affordability assessment is aimed at working out how much you can realistically afford to spend on debt repayments.
8. Once your debt counsellor has determined whether you are over-indebted or debt stressed, he or she is obliged to follow a certain procedure as prescribed in the National Credit Act. The procedure will depend on the debt counsellor’s determination.
9. If your debt counsellor determines that you are over-indebted and legally eligible for debt counselling, he or she must notify all your creditors and the credit bureaus of this by sending them a prescribed form, Form 17.2, marking the appropriate paragraph that confirms you are over-indebted.
10. If your debt counsellor determines that you are not over-indebted or eligible for debt counselling, he or she must reject your application and send a Form 17.2 to all your creditors and the credit bureaus, marking the paragraph that confirms that you are not over-indebted.
11. If your debt counsellor determines that you are over-indebted, he or she will draw up a repayment plan to rearrange your debt obligations in line with what you can realistically afford. Your debt counsellor must submit the plan to your creditors for their consent within 60 business days of receiving your application for a debt review.
12. If all your creditors accept your debt counsellor’s repayment proposal, your debt counsellor must obtain a consent order from the National Consumer Tribunal or a magistrate’s court, again within 60 days.
13. If you or any of your creditors rejects the repayment proposal, your debt counsellor must refer the matter to a magistrate’s court with a recommendation, which he or she will seek to have made an order of court. A magistrate can reject the debt counsellor’s recommendation if he or she considers the proposal unreasonable. Unless the magistrate gives the counsellor another chance to improve on the proposal, this has the effect of a termination of the debt review process.
14. If your creditors accept the repayment plan, or if a magistrate’s court agrees to the repayment plan, a PDA will channel your revised payments to your creditors. You make these payments directly to the PDA. The PDA is responsible for providing monthly statements to you and payment schedules to your debt counsellor and creditors, as well as attending to queries from the respective parties. (You can be charged three percent of distributable income by a PDA, but this is capped at R500 a month.)
15. Once all of your debts have been paid, your debt counsellor will issue you with a clearance certificate and will notify the credit bureaus that you are no longer in debt counselling. The fact that you were in debt counselling will be expunged from your credit record, but if you had judgments against you, these will remain on your record for the remainder of the five-year data retention period.