The debt review process is outlined in the National Credit Act. Debt restructuring is an important part of this process because it ensures you can make affordable repayments towards your debt, your debts can be paid off within a reasonable period and you still have enough money for your monthly living expenses.
When your debt is restructured to ensure you can continue making repayments and your creditors are informed you are in the debt review process, you are protected from having your assets repossessed or creditors taking legal action against you.
You apply to go under debt review by completing an application form (called a Form 16) in which you list your personal information, income and expenses, debts and arrear accounts.
Your debt counsellor then contacts all of your creditors to inform them that you have applied for debt review and request the outstanding balances on your loans, store accounts, credit cards and other credit agreements (the creditors are sent a Form 17.1).
The debt counsellor will then assess your situation based on the information from the credit providers and on your credit report. If the debt counsellor determines that you are unable to afford your repayments and you are over-indebted, the debt review process starts with your consent. Your creditors will be notified that you are in debt review (they will be sent a notice known as a Form 17.2).
Your debt counsellor will review your budget with you to remove any unnecessary expenses and determine how much money you need to live on each month. They may also identify assets – such as a second property - you may need to sell.
The debt counsellor will then calculate how much money you have left to pay your debts.
Your debt counsellor will then draft a repayment proposal that lists all of your creditors, the balances you owe, the interest rates, and the repayment terms.
The repayment plan will apportion the amount that you can afford to repay among your creditors and creditors may be requested to consider amending your loan agreement by:
Certain credit providers, particularly the banks, have drawn up their own rules, known as the Debt Counselling Rules Set (DCRS), to quickly and fairly agree on terms to restructure debts. Many large debt counsellors follow these rules when restructuring debts.
The rules include maximum terms for loan extensions and how repayments will increase annually. When a debt is repaid, the money available for repayment that was being used for that debt will then be reallocated to the remaining debts.
The credit bureaus are also notified that you are under debt review, which means that you will no longer be able to obtain credit until all your debt is settled.
Your existing debt payment arrangements should be stopped to be replaced with a new payment arrangement:
Any set-offs from your bank (amounts debited from your account for money owed to the bank) must also be stopped immediately.
A new payment arrangement will be put in place to repay your debt. Instead of you paying multiple creditors, you can make one consolidated debt repayment to a Payment Distribution Agency (PDA), who will then distribute payments to the different creditors as per the agreed proposals.
|
FINDING BALANCE |
This is a major benefit of debt review, as you only have to make one consolidated and affordable payment a month that will be used for all your debt repayments.
If all your creditors have agreed to the revised terms, your debt counsellor can take the payment arrangement and the creditor’s agreement to it, to the magistrate’s court or to the National Credit Tribunal (NCT) to have it made an order of court.
If one or more credit providers do not agree to the payment arrangement, the debt counsellor may renegotiate it or take it to a court to ask it to make an order.
Your debt counsellor should ensure that an order is issued, but it may take many months for this to happen.
Credit life is a form of insurance that pays out if you die, become disabled, suffer an illness, or are retrenched and are unable to pay your instalments. If you fall behind in your premiums, your cover will fall away. Your debt counsellor should ensure these premiums as well as your life cover and other essential insurance policies are treated as necessary expenses.
Also, make sure you check the terms of your policy. Some insurers require you to notify them if your financial situation changes (such as a change in job or income) or if you are placed under debt review.
A reputable debt counsellor will do this on your behalf as well, particularly as credit life insurance is often part of the original credit agreement and repayment.
If the insurer is not informed of your situation, it may refuse to pay out a claim, even if your premiums are up to date. Be open and honest about your circumstances to avoid future problems.
WARNING: KEEP UP THE PAYMENTS If you stop making payments as outlined in the new credit agreement, your creditor may revoke the new agreement and revert back to the original one. |
