Help! I am flagged as being under debt review on the Credit Bureaus.
Since promulgation of the National Credit Act. 34 of 2005 (herein after referred to as the “act”), most South Africans have heard of debt review and have a faint idea of what it entails. Some of us have encountered financial difficulty and have approached a debt counsellor with the hope of him or her assisting them in getting a handle on their finances.
As with everything in life, debt review has challenges and when faced with any number of these challenges, consumers sometimes wish to cancel the debt review process and rather find another way of dealing with their financial woes.
The question is however, up to and until what point can one still cancel the debt review process and what are the repercussions?
When attending a debt counsellor to initiate the process, certain steps are to be followed by the debt counsellor. The first step is that a form 16 is completed by the consumers under guidance of the debt counsellor, which sets out the consumer’s financial position insofar as income and expenditure and specifically its credit agreements are concerned. Once this form has been completed and the debt counsellor has assessed same and determined that the consumer is over indebted, the debt review process is underway, and the consumer is considered as being “under debt review”.
The important aspect to take away from this article is that, once the determination has been made by the debt counsellor that a consumer is over-indebted, the consumer may not cancel the process by choice and should he or she wish to do so, it has to be done in terms of the NCR Withdrawal Guidelines 002/2015 which have been drafted in accordance with the judgment in Rougier vs Nedbank.
So, when can a consumer cancel or exit the debt review process? The guidelines provide as follows:
“Section 71(2)(b)(i) of the National Credit Act initially made provision for consumers to only exit debt review through issuance of a clearance certificate after they have paid all their re-arranged debts in full. The effect of this provision is that in instances where a home loan formed part of the debt review application, consumers have to remain under debt review for the duration of the home loan term even after settling re-arranged short term debts. This provision will however change upon proclamation of the National Credit Amendment Act (NCAA) under section 71(1) as follows:
- A Consumer whose debts have been re-arranged in terms of Part D of this Chapter must be issued with a Clearance Certificate by a Debt Counsellor within seven days after the Consumer has –
- Satisfied all the obligations under every credit agreement that was subject to that debt re-arrangement order or agreement in accordance with that order or arrangement; or
- financial ability to satisfy the future obligations in terms of the re-arrangement order or agreement under-
(aa) a mortgage agreement which secures a credit agreement for the purchase or improvement of immovable property; or
(bb) any long term agreement as may be prescribed;
- that there are no arrears on the re-arrangement contemplated in subparagraph (i); and
- that all obligations under every credit agreement included in the re-arrangement order or agreement other than those contemplated in subparagraph (i), have been settled in full.”
It is therefore clear that a debt counsellor does not have the requisite statutory powers to terminate or withdraw the debt review process. There are however various manners in which a consumer can withdraw from debt review which are set out below.
Once a Court order has been granted confirming the debt counsellor’s restructured payment plan, a consumer cannot terminate or withdraw from the process. Consumers can however approach the relevant Court to rescind the order or apply for an order which declares that the consumer is no longer over indebted.
Consumers can only withdraw or terminate the debt review process prior to declaration of over indebtedness by the debt counsellor. If a determination of over indebtedness is made, but the restructured payment plan has not been made an order of Court, the consumer will remain under debt review. In such cases, the consumer would have to approach the relevant Magistrate’s Court for an order to declare it no longer over indebted.
The application alluded to in the preceding paragraph, is brought in terms of Section 87(1)(a) of the National Credit Act. The section is quoted as follows:
“87. (1) If a debt counsellor makes a proposal to the Magistrate’s Court in terms of section 86(8)(b), or a consumer applies to the Magistrate’s Court in terms of section 15 86(9), the Magistrate’s Court must conduct a hearing and, having regard to the proposal and information before it and the consumer’s financial means, prospects and obligations, may-
- reject the recommendation or application as the case may be;”
As a practical example, the following facts apply:
A consumer applied for debt counselling but did not complete the administrative process with the debt counsellor. The debt counsellor flagged the consumer in the normal course on the credit bureaus, advising creditors that she had applied for debt counselling. The consumer completed form 16 and the debt counsellor proceeded to inform the creditors of such application and requested the necessary documents from them. No formal application was however made to Court to declare the consumer over indebted.
In this instance, the consumer cannot merely decide to withdraw from the process and have the flag cleared as mentioned above, but a formal application should be launched at Court to declare the consumer “not over indebted”.
The Magistrate’s Court has powers to declare the consumer over indebted or not over indebted in terms of Sections 85(b), 87(1) or 88(1)(b) of the act.
A court application in terms of Section 87(1)(a) of the act must be made to the Magistrate’s Court with the relevant jurisdiction requesting the Court to reject the debt counsellor’s recommendation that the consumer be found over indebted; and declare the consumer no longer over indebted. The application must advise the Court that the consumer has been found over-indebted by the debt counsellor and a copy of the form 17.2 must be attached. The application must advise the Court that the consumer is no longer over indebted and must include the consumer’s financial circumstances at the time in motivation of the aforesaid. The application must further advise the relevant Magistrate’s Court that the consumer no longer needs to be under debt review.
So how does one go about proving that a consumer is “not over indebted”?
This is quite simple and for the most part similar to the form 16 process that is followed by the debt counsellor in the initial stages of the debt review process. The consumer shall advise the Court of what her current income is, what the current monthly commitments are, which commitments shall include all credit agreements and should prove to Court that, after having paid all monthly commitments, that the consumer either breaks even or shows a surplus income.
Should you be faced with the issue of having a debt review flag on your credit record and are no longer interested in proceeding with the formal process, you should approach an attorney to assist with drafting and launching the application mentioned above in order to remove the flag on your credit record and formally end the process.