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What to expect when you default on debt – Section 129

Times are tough and while many South Africans were able to pay their bills before, the impact of Covid 19 on households’ income has led to great financial hardship. Many families turned to short term credit to pay the basics but are now having trouble keeping up with debt payments. Have you recently received a Section 129 letter of demand from a credit provider because you defaulted on hour debt?

What now?

If you have defaulted on your debt, you are not alone. We are here to explain what you can expect when you default on your debt and to offer some solutions that are designed to protect consumers that are available under the National Credit Act.

South Africa’s debt problem (before lockdown!)

According to the National Credit Regulator’s 2020 report, R126.35 billion’s new credit were granted between January and March 2020 (before the Covid-19 lockdowns began). A total amount of 27.99 million consumers were credit-active at the time with 10.47 million consumers already showing impaired records.

The 2021 NCR report hasn’t been released yet, but the consensus is that consumer debt has increased and financial pressures are mounting.

The role of a Section 129 letter of demand

A Section 129 letter is sent to a consumer when the consumer is in default of the credit agreement, and the consumer has failed to make an arrangement to settle the arrears. The purpose of the section 129 letter is to offer the consumer the opportunity to get help, to settle outstanding debt and to resolve any disputes with the credit provider.

The Section 129 letter is the first point of legal proceedings against a consumer. Should a consumer fail to respond on a Section 129 letter, the following can/will take place:

  • Upon receiving a Section 129 a consumer has 10 business days to respond to the letter. The consumer needs to, in writing, express to the credit provider the intention to apply for debt relief, settle the debt or to dispute the Section 129 letter.
  • If a consumer fails to respond to a Section 129 letter, the credit provider has the right to instruct attorneys to issue and serve a summons against the consumer.
  • The attorneys will then proceed to prepare the summons, to be issued by the court at the area where the consumer lives or works. When this happens the consumers will be held liable for all legal costs, which includes the court and sheriff fees.
  • The sheriff of the court will serve the Summons on the consumer’s address as provided by the consumer to the credit provider.
  • If the sheriff is unable to serve the summons at the consumers’ physical home address, the sheriff will proceed to serve the summons at the consumers’ place of employment.
  • If the consumer fails to notify the attorneys and the court of their intention to defend, the attorneys will request that the court grant a Default Judgement in the consumers’ absence.
  • Once judgement has been made, a credit provider may proceed with execution institutions against the consumer which include the attachment and sale of the consumers’ property, or a garnishee order against the consumers’ employer to deduct an amount of the consumers’ salary until such time as the full amount owing (including costs and interest) have been paid.
  • A judgement will ruin a consumer’s credit rating, making it impossible to obtain future credit. A judgement is also valid and enforceable for 30 years from the date that the judgement has been granted.

To summarise, according to the National Credit Act

“If a consumer is in default under a credit agreement, the credit provider may draw the default and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date” – The National Credit Act

Is there good news?

If handled correctly, a Section 129 does not have to be your downfall. Contact DebtGrip today so that we can assist with a debt relief solution and to protect you from any further legal action.

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