The debtor’s survival guide

Debt is an everyday reality for most South Africans. Whether such debt relates to your home mortgage, your car finance, shopping cards or in general to just survive, debt is there and a constant source of worry for many consumers. But worrying unfortunately won’t take away the debt and management of your debt must remain a key priority to ensure you keep your head above water. The law provides mechanisms for consumers to manage their debt, and if you understand and follow our handy survival tips, you can give yourself a fighting chance to survive in the debt jungle.

Survival tip 1: Study the pre-agreement documents carefully

The National Credit Act (‘NCA’) compels credit providers (such as banks and other providers of credit) before entering into a credit agreement with a consumer to provide the consumer with certain pre- agreement documents in order for the consumer to make an informed decision about assuming the credit. For example, if a consumer enters into a loan agreement with the bank, the bank must provide the consumer with a pre-agreement statement wherein the risk and cost implications for the consumer is explained as well as a pre-agreement quotation wherein a complete breakdown of the capital amount, interest and all costs for the consumer are explained in writing.

The quotation is valid for a period of five days, during which the consumer has the opportunity of carefully studying and considering the terms and conditions of the credit agreement. These provisions ensure that consumers’ rights in terms of the NCA are protected by placing the consumer in a position where he understands all the related costs and interests and can decide whether he can afford the debt.

You are entitled to request these pre-agreement documents before entering into any agreement and should do so. If your credit provider fails to provide these, this should sound a serious warning to you to proceed with the utmost caution.

Survival tip 2: Insist that the terms of the credit agreement are explained to you

The credit provider is obliged to explain the terms of the proposed credit agreement to a consumer and to conduct a proper credit assessment before extending credit. If a court finds that the consumer did not understand the nature of his obligations or if it was not properly explained to him, or that the credit provider failed to do a proper credit assessment, the court may set the credit agreement aside.

Should it be found that the consumer was over indebted at the time when entering into the agreement, the court may suspend and restructure the consumer’s obligations, and in that case no payments, no interest, fees or charges can be levied by the credit provider.

Ask your credit provider to explain the agreement to you and take note of obligations explained in the agreement. Also, when asked to submit information for a credit assessment you should be complete and honest with the information provided. This assessment is intended to protect you as consumer, and by being less than honest, you will prejudice yourself in the long run.

Survival tip 3: You can refer the matter to a debt councillor/ombudsman/consumer court

Before any legal action may be taken in respect of a credit agreement, a debtor must be served with a notice (Section 129 Notice) informing him of his rights in terms of the NCA. This Section 129 Notice must inform the debtor that he is in arrears with his obligations in terms of the credit agreement as well as of his right to refer the matter to a debt counsellor, dispute resolution agent, ombudsman or consumer court. No legal action may be taken before such Section 129 Notice has been given. Our courts view this Section 129 Notice as so important that the Constitutional Court recently ruled that a party must not only satisfy the court that such a notice was sent to a debtor, but that the debtor actually also received the notice.

Importantly, once such a Section 129 Notice has been sent to a consumer, the consumer can no longer refer the matter to a debt counsellor for debt review. This implies that a debtor who is not pro-active in seeking the help of a debt counsellor when falling in arrears, will not have the benefit of having his debt restructured once the creditor has issued a Section 129 Notice to him.

Once you start falling behind, seek the help of a reputable debt counsellor. Don’t delay until creditors are commencing with legal action against you before taking action. A debt counsellor can assist you to restructure your debt in a way that can help you manage your obligations.

Survival tip 4: You have the right to be placed under debt review

A consumer who cannot meet his financial obligations can approach a debt counsellor and apply to court to be placed under debt review. The effect of the debt review process is that should no legal proceedings have been taken against a consumer, all of the consumers’ obligations under his existing credit agreements can be restructured in such a manner that suits the consumers’ income.

A further effect of the debt review process is that credit providers are barred from instituting legal action against the consumer in terms of their credit agreements with the consumer. Should a consumer be successful with an application to be placed under debt review or whilst such an application is pending the consumer is protected from legal action against him and the debt review will first have to be terminated by either a court order or in terms of the provisions of the NCA before a credit provider can take further steps against the consumer. Again it should be noted that should a credit provider commence with steps for the enforcement of a credit agreement by sending a Section 129 Notice to the consumer, that credit provider’s credit agreement cannot form part of any debt review process.

These basic tips can help a debtor avoid being caught in the spiral of bad debt and credit enforcement actions. A debtor has rights even when his credit obligations are not being met. However, acknowledging your predicament and seeking help early is key to affording you the ability to access the remedies provided by the NCA prior to formal debt collections processes commencing.

September 27, 2012

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