Debt Review VS Debt Extinguishing
Do You Qualify?
Do you qualify for Debt Extinguishing or debt cancellation under the new
Credit Ammendment Bill?
Debt Review VS Debt Extinguishing
Do you qualify for Debt Extinguishing or debt cancellation under the new Credit Amendment Bill?
Some of the 9.5 million South Africans are rubbing their hands in glee with the expectation that their debt will be cancelled once the new Credit Amendment Bill comes into effect. Debt extinguishing is the new term being used by the bill and you can be assured that this term will become more widely used. The bill has already been signed by president Ramaphosa. Firstly it’s important to know that one will have to comply with certain qualifying criteria one of the most important of which is that the person earns less than R 7 500 per month. Predictably, banks and lending institutions have voiced vehement opposition to the new bill citing the fact that credit will not be extended to impoverished people in future.
The following criteria will apply:
- A person must earn less than R 7 500.00 per month. It is unsure at this stage whether this is net or gross income but the latter is more likely and will exclude any deductions. How this will be verified is still to be determined.
- The person must have more than R 50 000.00 in unsecured debt which can not include a car or a home loan. It is also unclear whether this is inclusive or exclusive of interest
- A person must be legally declared to be over-indebted
- If the applicant has been sequestrated or under administration they will not qualify.
- Over-indebted people must apply to the National Credit Regulator (NCR). No one will qualify automatically. And the NCR will determine whether your situation is dire enough to be considered.
- Applicants will only have 4 years to apply once the bill takes effect
How will the process work?
Applicants will apply to the National Credit Regulator (NCR) who’s credit intervention officers will accept or reject your case and inform your creditors and credit bureaus that you have applied for Debt Extinguishing.
An NCR official will analyse your financial situation to establish whether you are indeed over-indebted and establish whether one or more of your creditors were reckless in extending debt to you in the first place. This is to establish whether any organisation gave you a loan that you could not afford to pay at the time. If this is found to be the case they will take action against that lender.
Even if no reckless lending was found, you can still qualify for debt relief.
The NCR will also endeavour to provide applicants with financial education to ensure that applicants do not find themselves in this position again.
The NCR will establish whether you are indeed in a position to settle your debts within 5 years and if this is the case your application will be rejected.
If they determine that you can’t afford to pay off your debts within 5 years without their intervention they can decide that a portion or even all your debt repayments be suspended for up to a year. Within eight months, the NCR will re-assess your financial situation.
If they determine that your situation has improved and that you are now able to pay your debts within 60 months, they will arrange for your debts to be restructured through lowering your interest rates or extending your debt repayment period.
If it is established that you are still not able to settle your debt, another 12 month breather will be granted. Again your finances will be re-assessed within 8 months and only if it found that once again your situation has not improved or deteriorated, part or even all your debt be written off.
Will I be able to apply for new credit once my credit has been written off?
No. Once your debt has been extinguished you will legally not be able to apply for new credit.
It is very important to realise that extinguished debt will be reflected on your credit records and credit profile and it may well mean that no bank or lending institution will be prepared to extend credit to you in future. One can understand that lenders will be reluctant to place depositor’s money at risk if the law allows for one’s debt to be simply written off arbitrarily. This means that you will have to ensure that if you want to purchase a new car, a house or big ticket furniture items in future or if you require a student loan or capital injection for your start-up business, you will have to pay for it in cash yourself without having to rely on any kind of financing. You may probably also find that only loan sharks may be prepared to extend you loans at grossly inflated interest rates which will very quickly lead to an you becoming over-indebted again.
Some people are sceptical that the NCR will have the resources to investigate every case and decide whether a person’s debt can be expunged.
Debt review VS debt extinguishing
It is very likely that many of the applicants applying for the new Debt Extinguishing service may find that they simply end up entering some form of debt review administered by the National Credit Regulator (NCR) so if you feel that you are over-indebted, there is no point in waiting with bated breath to get in the system. In this respect it is best then to enter the debt review process with a trusted debt counsellor such as Debt-911 a qualified debt counsellor which is registered with the National Credit Regulator (NCR). We advise that over indebted clients do this sooner rather than later.
Debt review also called debt counselling is regulated by the National Credit Act and a regulator was appointed to oversee the process which is intended to help over-indebted consumers repay their loans and get out of debt while still being able to meet their normal day to day expenditures.
How does debt review work?
Firstly it is important that consumers select a qualified debt counsellor who is registered with the National Credit Regulator (NCR) who will assess a consumer’s financial situation before making recommendations which then proceeds to full blown negotiations with the consumer’s lenders with regards to restructuring their debt. Should these lower monthly repayment proposals be accepted by the various lends, an application to the courts are made with the objective of this then becoming a court order. One monthly lump sum is made to a distribution agency who then distributes all the necessary payments.
In many respects, the initial process of Debt Extinguishing as currently set out is simply a form of debt review in that it offers over-indebted consumers access to lower interest rates and extended repayment periods i.e. 5 years. It also forces consumers to go through debt review process not once but twice over a 24 month period before any debt expulsion will even be considered. Review periods of your financial situation are set at 8 and 16 months.
Only if a person has no income will he/she be eligible for a temporary suspension of debt repayments for a maximum period of 24 months in the hope that the over-indebted person will find a secure job in the interim and commence regular monthly repayments. During this suspension period, interest and fees will not be allowed to be levied by your lenders. It is only after an initial 24 month period that the NCR will apply for consider debt expulsion if your situation is unchanged.
As indicated previously, if a consumer is under debt review they can not apply for Debt extinguishing and may also not enter into additional credit agreements while going through the process unless this is for a consolidation loan.
If you have been convinced to enter into a credit agreement while you are under debt review, this agreement may be deemed reckless lending and you could apply to have all or part of the loan cancelled. Be aware however that any credit agreements entered into whilst under debt review cannot form part of your debt relief agreement and you will be forced to service these loans.
It’s important to know that consumers are protected from legal action by your creditors while under debt review unless you fail to make your regular monthly payments. This does not apply to loans entered into after your debt review has commenced.
Where a credit agreement’s debt is written off under debt relief your credit provider can not apply any enforcement under that contract.
Note that you may be imprisoned for up to two years and or face a hefty fine if you provide false information to your debt counsellor. You will also be permanently banned from entering into any future credit agreements.
A final option should your debt relief application fail, is to apply to your magistrates court to have your debt repayments re-arranged.
Although no limit has been set relating to the number of times that a person may apply for debt relief, it is unlikely that you will be accepted more than once.