Debt review process (aka debt counselling process) first became a profession in the year 2007 when the National Credit Act was first instituted. Debt Review offers individuals who get too far in debt alternative remedies to the situation from the more traditional methods of sequestration and administration.
While this profession isn’t one that’s been around a long time in South Africa, there have been many other countries like the UK and the United States that have been using it successfully for some time now.
The success of this debt review program has already been proving its worth, since from the time that it was first instituted, the process of debt review has resulted in the paying back over R 2 billion to credit providers according to the National Credit Regulator.
Whenever a consumer goes into debt review or debt counselling, their well-being is always at the heart of the matter, and it gives them a tool where they can keep their dignity intact. The ultimate goal is always to bring these individuals back into a positive standing within the credit market. This will allow them to take on debt again, but in a responsible way.
Understanding Debt Review in South Africa
The main purpose of debt review is to bring the consumer back into good standing with the credit market and to provide them with the tools that will help them to get out of debt as soon as possible.
Whenever a consumer goes into debt review, all of their valuable assets will be protected from any legal actions which the credit providers might take against them, if they have been included into the debt review process. The process of debt review is available for all individuals regardless of their status, and upon application, there will be an assessment made which will determine how bad the debt problem is.
If in the assessment by the debt counsellor it is found that the consumer has got themselves into too much debt, the creditors will be contacted by the debt counsellor in order to try and either extended the length of the credit agreement, or reduce the payments. It’s not uncommon for many of these cases to result in the credit providers agreeing to reduce the interest rate on the credit as well.
This process will take all of the debt’s that are included in the review and consolidate them into one payment that will be much easier for the debtor to make.
If the debt reviewer is able to come to agreement with all of the different credit providers, then there will be an application filed with the Magistrates Court in order to gain a consent order that is going to make the agreement to the debt re-arrangement and payment plan legally binding by all parties. If the debt counsellor is not able to get all of the credit providers to agree to the proposed debt re-arrangement terms, then they will take the case to court in order to get the Magistrate to provide a ruling in regards to the terms which were proposed in the plan.
It is then going to be the responsibility of the debtor to continue making monthly payments that are in line with the deal that was cut until all the balances have been paid in full, or until they get into financial situation where they are able to meet the original rates and payments of their initial credit contracts and continue with that arrangement.
When all of the obligations of the debt have been met and paid back in full under the terms of the debt review schedule, the consumer will then be issued a clearance certificate by the debt counsellor which states that the individual has been rehabilitated.
Before getting into any type of debt review, it’s important that consumers request that their debt counsellor give them a complete explanation of the entire process, and what they can expect. The consumer should understand all of the aspects of the debt review before they sign on.
The Process of Debt Review
The first step is to provide the debt counsellor with all the details of your income, your bills, and your monthly budget. This is going to require a copy of your paycheck stubs, a copy of your identification, and copies of all your monthly debt statements from your creditors.
When the debt counsellor receives all of the information, they will do an assessment in order to verify that you qualify as being over indebted. If this is deemed true, then the debt counsellor is going to set you up with a consultation visit.
There are a couple of different ways that this consultation can take place, being either a visit within our offices for a face-to-face consultation, or via the telephone.
In the process of this consultation, the debt counsellor is going to verify all of your bills, and your current budget. They will then set up a new budget which you will need to agree upon, which will then enable them to determine the amount of money that will be available for paying back the debt. Upon completion of the process, the debt counsellor is going to explain to you all of the associated costs, and give you an interim plan for repayment. This is the moment where your application for debt review is made official with a form 17.1.
The next step in the process is for the debt counsellor to make contact with all the credit providers and the different credit bureaus in order to make sure that the debts are valid. At this point, the credit bureaus are going to put a note on your report that you are currently undergoing debt review, and this notation is going to stay on your report until everything is completely paid off. Once it is completed however, it will be removed completely. Your debt counsellor going to attempt to make negotiations with all of the different credit providers in an attempt to get them to agree to your proposals.
If the proposal is accepted by all of the different credit providers, then the magistrate court will be presented with a consent order to make the proposal legally binding. If any of the credit providers reject the proposal, then the debt counsellor is going to bring the case before the magistrate in order to get a decision from the court on the proposal.
After the previous steps have been completed and everything has been agreed upon, you’ll be presented with a final repayment plan by the debt counsellor which will also be provided to the Payment Distribution Agency (PDA). The end goal is to consolidate all of your debts into one single payment that will then be dispersed to the different creditors each month. The payment will be made each month until the obligations have all been fully met.
Structure of Fees, a guide.
The fee guidelines set forth for all debt counselors have been established by the NCR, and all debt counselors must stick to them. The reason for these guidelines is to provide protection for the consumers from debt counselors who would overcharge individuals that are already an under extreme burden of debt, but will still allow the counselors to make enough money to stay in business.
The Fee Guidelines for Debt Review Application and Process
1. According to the terms of Schedule 2 (2) of the National Credit Act, there will be an R50 application fee plus VAT.
2. If the application for a debt review has been rejected, then there will be an R300.00 fee accrued (not including VAT).
3. There will be a fee for the restructuring of the debt which is less than or equal to the amount of the initial installment of the plan. This will never exceed R6000 (not including VAT).
4. If the debt review requires a joint application, then the fee could be raised to R6000 (not including VAT).
5. A fee of 5% of the monthly payment amount for a period of 24 months with a max limit of R400. After the first 2 years, there will be a charge of 3% for the remainder of the contract, or until the max of R400 is reached. Both amounts do not include VAT.
6. If the applicant at any time withdraws themselves from the process of the debt review after a certain point has been reached, they will then be subject to a fee which is equal to 75% of the amount of the original restructuring fee.
7. The debt counsellor will receive a legal fee of R750 during the second month of the process. This is for the work of obtaining the consent order from the magistrate after the creditors have all agreed to the proposals set forth in the debt consolidation agreement.
8. The consumer will be responsible for paying any other legal fees that are accrued due to the court process. Proforma invoices should be able to be presented by the debt counsellor from any attorney that may be involved in the case.