Don’t Pin Your Hopes on Debt Relief

Publication Date: 17/08/2019

The process isn’t in place yet — and write-offs aren’t available for everybody

If you’re pinning your hopes on getting your debts being written off now that the National Credit Amendment Bill — or debt-relief bill — has been signed into law, don’t.

There’s no commencement date for the controversial legislation, and even if applications were open and you were found to be eligible for it, you won’t necessarily have your debts extinguished or even suspended. Instead, you might be placed in a form of debt review administered by the National Credit Regulator (NCR).

The debt-relief intervention that forms part of an amendment to the National Credit Act seeks to help over-indebted individuals who earn less than R7,500 a month and have unsecured debt of no more than R50,000.

It’s open only to those who are not in debt counseling, have not been sequestrated, and are not subject to an administration order. Applications will be processed by the NRC then submitted to the National Consumer Tribunal.

Riccardo Petersen, a director at law firm Norton Rose Fulbright, says that in many instances, a long process would precede a decision by the tribunal to extinguish debts. The regulator will first assess whether you can pay off your debts by way of a debt re-arrangement. This means you get to pay a lower instalment over an extended period of no more than five years. This is similar to debt counseling, except you would not have to pay a debt counselor nor enjoy the services of one.

Nthupang Magolego, a legal adviser at the NCR, says that if you qualify for debt re-arrangement, you will also enjoy certain concessions, such as reduced interest rates. “This is already happening [in debt counselling]. We will be copying the process, the only difference is that the NCR will do the debt review. We will follow task-team agreements and the debt-counseling rules set [agreements between the credit industry and the regulator].”

If, after 24 months,there has been no improvement in your circumstances, such as your employment status, only then will the regulator apply to the NCT for your debts to be written off

If you have no income, the regulator will recommend that your debts be suspended for 24 months in the hopes that your circumstances change and you will be able to satisfy your debts in time. During this time, interest and fees stop running, Magolego says.

If your circumstances improve at any point during this period and you can pay off your debts via debt re-arrangement, the regulator will make this recommendation to the NCT. During this period, you will be required to attend a financial literacy programme provided by the NCR, which Magolego says is aimed at rehabilitating you as a consumer of credit.

If, after 24 months,there has been no improvement in your circumstances, such as your employment status, only then will the regulator apply to the NCT for your debts to be written off, she says.

Business Day reports that the National Treasury estimates the debt-relief proposals could result in the write-off of between R13.2bn and R20bn of debt.

Trudie Broekmann, an attorney who specialises in consumer law, says that if you apply for debt relief you may not enter into any more credit agreements, other than a consolidation loan. You can only take on more credit if your application is rejected, or you were found to be not over-indebted, or you have paid off your re-arranged debts.

While you are in debt relief, your creditors may not take legal action against you unless you default on re-arranged repayments, she says.

If a credit provider enters into a credit agreement with you (other than a consolidation loan) while you are in debt relief, all or part of the credit can be declared reckless. If you enter into a credit agreement while in debt relief, debt relief will not apply to that agreement, Broekmann says.

If a credit agreement is written off under debt relief, the credit provider may not enforce any right under that agreement. If you furnish false information when applying for debt relief, you can be fined or imprisoned for not longer than two years, or both, and are permanently prohibited from applying for debt relief, she says.

If your application for debt relief is rejected, you may approach the magistrate’s court to re-arrange your repayments.

Broekmann says there’s no limit to the number of times you can apply for debt relief. But Magolego says it’s unlikely that you would benefit more than once, and debts will be written for a period of 48 months only, after which there will be an affect study to assess the efficacy of this measure and whether it should become a permanent feature of the law.

The DA has slammed the decision by President Cyril Ramaphosa to sign into law what it says is a “deeply flawed and possibly unconstitutional” bill. “It will increase the cost of credit for low-income earners and negatively disrupt the credit market, while posing a financial risk to the state,” Dean Macpherson, the party’s shadow minister of trade and industry, said in a statement.

According to Business Day, the Banking Association SA has also warned it may stop lending to lower earners or raise borrowing costs.