Debt reduction: if it seems too good to be true it usually is!

Debt review in South Africa is a legal process that restructures debt and is designed to protect consumers. Even so, it is a process that has considerable consequences and therefore must be considered cautiously.

Once you have entered into this process there are only two ways out: either by paying all outstanding debts in full, or by paying off all short-term debts and catching up the balance-in-full on any long-term loans e.g. home loan, and then paying the original instalment going forward.

Only when this is achieved can a debt counsellor issue a clearance certificate which will release you from debt review. Upon receiving this certificate credit bureaus must remove your debt review status.

This may seem quite simple, however, many consumers are uneducated about the process and consequences thereof.

Debt counselling is prescribed in terms of the National Credit Act which stipulates that only a natural person may be a debt counsellor. Despite this, there are many large debt counselling companies who advertise extensively and offer huge discounts on instalments. Any applications to these companies are handled by call centre agents who are not registered debt counsellors and therefore do not take your personal circumstances into account before advising you.

On application of debt reduction a declaration must be signed acknowledging that you understand your credit record will reflect the application and that you are over in-debted. The debt counsellor legally notifies your creditors and all credit bureaus. This is only removed once all the conditions noted above have been met. During this time you are prohibited from applying for any further credit.

Should you not be able to honour your debt repayment plan, which has re-arranged your debts to benefit you, then your credit providers will begin legal action which can result in you losing all of your assets – even your home.

Therefore, before taking this route it is imperative that consumers understand the process as well as the consequences of non-compliance.

This article is provided for informational purposes only and should not be substituted for legal advice on any specific matter. Any opinions expressed herein are subject to the law as at the time of writing and will change in accordance with any change in the law. We recommend that you contact HJW Attorneys at info@hjw.co.za directly for advice applicable to your specific matter.