Debt review – also known as debt counselling – is aimed at rehabilitating you if you are over-indebted.
You are over-indebted if you do not have enough money to repay all your debts after meeting your essential monthly expenses.
You can become over-indebted if your circumstances change – for example, loss of income or the death of a breadwinner in your household – or when you’ve been granted credit recklessly. In such instances, debt review could be a good option for you.
However, you must be aware that debt review is not a get-out-of-debt-free card, nor does it provide a holiday from your debt while you have a bit of a cash crunch. It comes at a cost, and there are serious consequences of going into debt review – at least until the process is complete and you get a debt review clearance certificate.
Debt review was introduced to South Africa by the National Credit Act (NCA) in 2007 as an alternative to debt administration and sequestration.
It is a regulated process that involves a rearrangement of your debts to make your repayments affordable for you and acceptable to your creditors.
While you’re in debt review, all your lines of credit are cut so that you cannot take on more, and your being under debt review is noted on your credit report. Once you are in debt review, you cannot exit the process until all your rearranged debts are paid in full.
What makes debt review attractive to many consumers is that it can provide relief from creditors who are threatening to take legal action against you or to repossess your home or car – but only if you apply in time.
The debt review process
To enter debt review, you must apply to a debt counsellor who is registered with the National Credit Regulator. The debt counsellor will assess the extent of your indebtedness.
If the debt counsellor considers you to be over-indebted, in terms of the NCA, he or she must make a proposal on how to rearrange your debts and refer your matter to a Magistrates’ Court.
The Magistrates’ Court needs to make a finding that you are over-indebted and accept the payment proposal before it can be made a court order.
As long as you comply with the court order, your debts remain in debt review and your creditors cannot take action against you. If you applied to go into debt review after a creditor obtained judgment against you, this debt is typically excluded from debt review.
You can also apply for debt review following receipt of what is known as a Section 129 notice from a creditor. Before a credit provider can proceed with legal action against you, it must send you a Section 129 notice. This notice will let you know that you are in default and will inform you of your right to refer the credit agreement to a debt counsellor, an alternate dispute resolution agent, the Credit Ombud or a consumer court to resolve any dispute or agree to a plan to settle your debt.
From receipt of the notice, you have 10 business days to act. If you don't act, the provider can take action against you and your debt can be excluded from debt review.
How are my debts assessed?
When a debt counsellor assesses your debts, he or she must also check for evidence of reckless lending. If, for example, you were granted credit when you were in default on an existing credit agreement – 
in other words, you were already battling to manage your credit when you were granted more – and you were truthful when applying for credit, you may have been given credit recklessly, and your debt counsellor must submit this to the court for it to decide.
A reckless lending assessment will cost you extra, but if a magistrate finds that you are a victim of reckless lending under a particular debt, that debt can be suspended or set aside.
The debt counsellor must draw up a proposal on how you can repay your debts. This may involve some budget cuts that you will have to implement and the debt counsellor should negotiate with your credit providers to allow you to rearrange your debts by:
Remember, if your debt is rearranged and you repay over a longer period you may ultimately pay more in interest.
Credit providers may make counter-proposals which you will have to consider, but the counsellor should help you negotiate a fair outcome.
What happens when I enter debt review?
You are effectively under debt review from the time that your debt counsellor has notified your creditors and the credit bureaus of your application. You are protected from your creditors from the time that you apply for debt counselling.
Your negotiated repayment plan will be presented to the Magistrate's Court and recommended as an order of court.
You can then either pay your creditors directly, or make use of a payment distribution agency (PDA). Debt counsellors are prohibited from collecting money from you and distributing it to your creditors and they therefore tend to encourage you to use a PDA.
In debt review, you will also have to pay your debt counsellor. In addition to paying all your creditors, according to the payment plan, PDAs will also pay your debt counsellor and themselves.
Debt counsellors’ fees are regulated. Generally, in your first two months in debt review, your entire monthly payment will go to your debt counsellor to cover the fee for administering the debt review and the legal process. Your creditors are then paid from month three. Your debt counsellor and PDA receive a monthly fee until your debts are paid in full. Read more: What does debt review cost?
How long will I stay in debt review?
While your term in debt review depends on how much debt you have, most debt counsellors structure their 
proposals so that you will be out of debt review in five years.
You are released from debt review when your rearranged debts (debts that were subject to the debt review process) have been paid in full and your debt counsellor has issued you with a debt review clearance certificate. The clearance certificate is then sent to every credit bureau to update your credit record and to clear it of any negative information about your failure to repay your debts.
