When to exit Debt Review

Many consumers commit themselves to debt review only to get cold feet several months later. For some, finding themselves cut off from credit lines is very stressful, while others find their financial situation may have already improved.

A recent court ruling provided clarity around exactly how and when an individual may exit Debt Review.

Firstly, let’s look at how Debt Review works:

  • When you apply for a Debt Review, the debt counsellor issues Form 17.1 which immediately protects you from any further legal action by your creditors against you.
  • When you receive Form 17.1, credit providers issue a Certificate of Balance within five business days and the debt counsellor assesses your finances to see if you are over-indebted. Debt counsellors must first establish if you are unable to meet all your credit obligations as they currently stand in order to determine if you are over-indebted.
  • Once this assessment has been completed the debt counsellor issues a Form 17.2, which is accepted within 10 business days after receipt of the Certificate of Balance. This includes a repayment plan, with included interest rate concessions from your creditors.
  • The consumer starts paying creditors in terms of the new repayment schedule as advised by the debt counsellor. All credit bureaus are notified, and you are effectively under Debt Review.
  • The next step is to apply to the Magistrates’ Court and the magistrate officially declares the consumer over-indebted.

DEBT REVIEW EXIT STRATEGIES

SCENARIO ONE – UNDER DEBT REVIEW BUT NO COURT ORDER

If you have applied for Debt Review and the debt counsellor has issued Form 17.1, you can still cancel the process – you just have to inform the debt counsellor that you do not wish to proceed. However, be aware that creditors can immediately act against you if you are in arrears with contractual repayments, as you are no longer protected.

Once the Form 17.2 acceptance has been issued and you are under Debt Review a magistrate still needs to issue a court order to declare the consumer over-indebted. If your financial circumstances have changed by the time your application reaches the court, you can provide this information in the court application. The magistrate will conduct a hearing and if, in agreement with you, they can reject the recommendation – which means that the magistrate agrees that you are no longer over-indebted, and this terminates the Debt Review.

SCENARIO TWO – EXITING DEBT REVIEW AFTER A COURT ORDER HAS BEEN ISSUED

The recent ruling found that no court can set aside the order that has placed a consumer under Debt Review until all the conditions are satisfied. This includes that all your debts, apart from your mortgage – are settled as per the court order. This means that even if your financial circumstances have changed, you will not be able to exit Debt Review prematurely.

The only way to exit the Debt Review, in this case, is to accelerate all your debt repayments and settle your debts as soon as possible. Accelerating your repayment could be advantageous if you received an interest rate concession in the agreement, as you would be able to settle your debts sooner than if you were not under Debt Review.

FAQ’s and common misperceptions regarding Debt Review

I was tricked into debt review – I only realised afterwards that I was put under debt review and I didn’t realise the implications. 

Be aware of what you are signing or agreeing to, because this tactic is being used by unscrupulous debt counsellors. They use terms such as “consolidation” instead of “debt review” and it causes confusion with the client.

  • You have the right to stop the process if the debt counsellor has only issued Form 17.1. You can also lodge a complaint with the National Credit Regulator (NCR) if you are unhappy and feel that someone had false pretenses.
  • If a Form 17.2 acceptance has been issued, you still have an opportunity to argue your case in front of a magistrate. Remember, however, that the magistrate can still find you over-indebted.

“Consumers who have not consented to be placed under debt review can lodge a complaint with the NCR, and the NCR will investigate. If the evidence supports the consumer’s contention, the debt counsellor will be instructed to remove the consumer from debt review. In addition, appropriate action will be taken against the responsible debt counsellor,” says Nthupang Magolego, senior legal adviser at the NCR.

I ENTERED INTO DEBT REVIEW BUT HAVE SUBSEQUENTLY MADE ARRANGEMENTS WITH MY CREDITORS AS MY FINANCIAL POSITION HAS IMPROVED

Credit providers do not like it when customers are placed under Debt Review as they are often required to provide interest rate concessions. In many cases, when creditors receive notification from a debt counsellor that a customer is going under debt review, they may contact the customer to make other arrangements.

  • If Form 17.2 acceptance has not yet been issued, you can ask your debt counsellor to release you. Firstly, ensure that you are not in arrears in any of your credit agreements, otherwise, you won’t have any legal protection against creditors. If the Form 17.2 acceptance has already been issued, you can take proof of your new arrangements to the court. The same rule applies if your financial circumstances have improved.
  • If your financial situation has improved it is advisable to share this information with your debt counsellor. Take note – if you make arrangements with creditors and the Form 17.2 acceptance has already been issued, you will still remain under Debt Review until the court hearing. It is also important to remember that you may lose your interest rate concessions approved by creditors and if you are not up to date with all your debt repayments and you can expect legal action from creditors.

I HAVE BEEN UNDER DEBT REVIEW FOR A FEW YEARS AND AM IN A POSITION NOW TO RESUME MY CONTRACTUAL REPAYMENTS

Once a court order has been issued, you have no other option but to settle your outstanding debts as per the court order. You can, however, pay off those debts as soon as you can – speak to your debt counsellor about a revised repayment plan.

HOW DO I KNOW IF A COURT ORDER HAS BEEN GRANTED?

The application for Debt Review must be settled in court within 60 business days, however, the actual hearing date depends on the court roll which can take up to six months.

The consumer will also be asked to sign a confirmatory affidavit. If the consumer delays in signing the affidavit and the matter is not set down in court within 60 days, the credit providers may terminate the agreement and take legal action against the consumer.

Your debt counsellor should inform you of your court application and the outcome thereof. It is very important to keep in contact with your debt counsellor to be aware of the status of your application. Your debt counsellor should also provide you with a copy of the granted court order.

If you have paid off all your debts but your debt counsellor refuses to issue a Clearance Certificate, you may apply to the National Consumer Tribunal to review that decision. If the tribunal is satisfied that the consumer is entitled to the Clearance Certificate, they may order the debt counsellor to issue it. A debt counsellor must, within seven days of the issuance of the Clearance Certificate, file a certified copy thereof with the national register established in terms of section 69 of the National Credit Act and all registered credit bureaus.

Find out more about what it means to be under debt review here.

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