Debt review can play a significant role in your financial situation. It can help you manage your debt and organize your manageable and achievable payment strategies. Beginning this process shows that you want to manage your finances and you wish to live a debt-free life. And this makes debt review a step toward financial certainty. So let’s begin with some basics:
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What is debt review?
Also referred to as debt counseling, it is the legal process of seeking a debt counselor to assess a customer’s outstanding debt and apply a reorganized debt settlement plans. This is achievable through negotiating interest rates with creditors to reduce them and extending the repayments terms. The strategy was introduced in 2007 by the National Credit Act to help individuals who are struggling with debts.
The debts counselor draws up a new monthly budget that is affordable to the client, giving the client the right and reliable guidelines.
On top of this, through debt review, as a client, you’ll only make a single monthly payment to a payment distribution agency, which will later pay all the clients’ creditors. This minimizes the worries of the need to stay updated and in several debt repayments.
Interestingly, under debt review, you are legally protected by the national credit act (NCA), and creditors won’t hassle you.
How to choose the best debt counselor
Deciding to apply for debt review can be quite overwhelming. You may need to consider how it will affect your credit score, how lengthy the process is, and the cost you’ll incur for the entire process. But if you have cooperated with a responsible and reputable debt counseling company, you’ll be given peace of mind. When choosing a debt counselor, always consider the following to ensure that you make the right decision.
Must be knowledgeable and registered
Debt counselors must be registered with the NCR. Additionally, they must be able to provide accurate information to avoid confusion. Also, they must be able to answer any question regarding the process. If you feel like you are not getting the expected service and are left with several questions than answers, you may have to look for a new debt counselor. You can request the counselor’s registration number (verified by the NCR) to ensure that they are registered with the NCR.
Charges must conform to the NCR.
While debt counselors can impose their charges, they must conform to the NCR’s fee structures. These charges may include the rejection fee, restructuring charges, application charges, after-care charges, and potential legal charges. Basically, all these expenses are accounted for in your restructured payment amount. And the payment amount must be affordable for the consumer as prescribed by the NCR. Your debt counselor should give you a breakdown of the fee structure if you need it. Also, they should be able to provide answers ion the different types of charges.
Use an esteemed payment agency.
Debt counselors cannot pay creditors on your behalf after restructuring your debt. Rather, they need to use a payment distribution agency (PDA) registered with the NCR.
Should be able to protect your information
The relationship between a consumer and a debt counselor is based on trust. This is because the process needs you to share confidential information. Your debt counselor needs to keep this information private and safe. The debt counseling company must have enough security measures to ensure that other parties cannot access this information.
Must have a creditable industry footprint
Before choosing a debt counseling company, conduct your research. Evaluate the company’s website and what it offers. Also, consider the reviews they get and their ability against their competitors. If you somehow have doubts, please don’t sign up. If you’ve realized after conducting your research that the counseling company is not satisfactory, rather seek another counseling industry.
How debt review works
Debt review is not as a complex process as many people think. The following are exact procedures involved in debt review:
Debt Review Process
Before applying for the debt review, the debt counselor will have to assess your current financial situation. They’ll determine your income, compare it with your living expenses and later examine your debt exposure. If you are heavily indebted, the debt review process begins.
After examining the basics, you’ll receive a formal application from the debt counselor. This will contain all your details, income expenses, and the details of the credit provider. You’ll also need to enter your debt information like bond account, vehicle finance agreements, loan agreements, clothing account, and arrear doctor bills.
Many folks often don’t ask for debt review help. Therefore, I’m taking my time to provide you with all the detail to help you know what to expect. After signing form 16, your creditors will receive a notice (Form 17.1). This form lets your creditor know that you’ve applied for debt review and your financial situation is under assessment. Additionally, it requests your creditor provide your debt counselor with a certificate of balance (COB)
All credit bureaus will be notified by the NCR that you’ve applied for debt review. This prevents you from incurring further credit after applying for the debt review. Before proceeding to the next step, you can still pull out from debt review by issuing your debt counselor a written letter that you wish to stop.
If your debt counselor doesn’t receive a withdrawal notice, your assistant will proceed with the next step by examining your financial situation with the balance certificate. This process validates that you’re over-indebted, and it is confirmed with a confirmation of Over-Indebtedness notice. Later, the details provided on the balance certificate are used to draft the repayment proposals to your creditors.
The repayment proposal shows a list of all creditors, your outstanding balances according to the COBs received, the provided installment, interest rates, and repayment terms of the debit review proposal.
Debit counselors and creditors will then renegotiate the repayment terms of the payment proposals, and if all creditors agree to the proposals, the matter is referred to the National Consumer Tribunal for a Consent Order. In a situation where more than one creditor doesn’t agree to the proposal, the case is referred to the magistrate court in your adjudication’s jurisdiction. In most cases, you don’t need to attend these meetings, and the attorneys chosen by your debt counselor attend to them.
The payment of your debt review installment begins from the same month you signed the form 16. This means you no longer need to pay your creditors the contractual installments. All the debt review payments are done to a Payment Distribution Agent (PDA). Regarding the national credit act, each debt counselor needs to contract a registered Payment Distribution Agent (PDA) so as to distribute its clients’ payments to the pertinent creditors. The PDA distributes the funds to your credit providers until you’ve repaid all your debts.
Important Debt Review Terms
Default payment under debit review
Default payment is an instance where the client pays:
- Less than the accorded installment
- Late payments than the agreed date
- Does not pay at all
According to section 86(10) of the national credit act, a creditor may end the debt review when you fault in payment and proceeds with legal steps against you as per section 88(30) of the act. With that, your credit provider may immediately provide a summons against you. When this happens, the credit provider doesn’t issue for the balances or the defaulted payment due to them but for the total outstanding debt of the agreement.
This means that if you default and have a home loan account in your debit review, you’ll likely lose your property. Repayment plans will have to be negotiated with credit agreements out of the debt review, meaning that these accounts appear under your monthly costs as normal costs. In this case, the interest rates renegotiated and reduced installments are no longer applicable.
This applies too to the defaults that happen for accounts that are not part of the debt review application.
Nothing is lost – should a few credit providers close their accounts from debt review due to default, the rest of the credit agreement will still be part of the debt review. However, the entire application must be redrafted to rule out the terminated accounts and revise the repayment installment consistently.
When to expect the clearance certificate
How long to expect the clearance certificate varies from one person to another. After settling your debts, you’ll be issued a clearance certificate. And it must be issued within seven days of the final repayment as prescribed by the National Credit Amendment Act of 2014.
All registered credit bureaus must be notified over the same and at the same time frame. Further, the credit bureaus must clear any negative credit details about the paid-off debts on your record. And this must be done within seven days.
Additionally, creditors who have been fully paid must give paid-up letters on all agreements. These letters will be submitted to the credit reporting agencies to confirm that all debts have been paid.
Debt review costs
The national credit regulator dictates debit review charges, so you won’t incur more or less charges while adhering to the NCR guidelines.
These charges are part of the process as they are paid by the PDA. After this payment, the PDA begins to pay your credit providers. This will be reflected in your debt restructuring payment plan given to your credit providers. Being an industry-standard operation, it is not considered a default payment to credit providers while paying the debit review fees.
The following is a summary of what you should expect:
Application charges R50
- Rejection charges R300 if the consumer is not over-indebted
- Restructuring charges for creating a payment plan equal to the first installment on the payment plan or R6 000.
- Legal payment of either R750 or whatever the debt counselor agrees with the client for non-consent orders.
- Monthly assistance charges equal 5% of the first installment on the payment plan or R400.
- Monthly PDA charges equal 3% of the first installment on the payment plan but not less than R50.
Where does the money go?
Once the debt review charges are paid off, the PDA distributes payment to your creditors according to the payment proposal issued to them. The PDA keeps all payments records and outstanding balances indicted on your monthly statements (often received through the mail). Through this, you’ll stay updated on every step of the process.
Disadvantages of debt review
Before opting for a debt review, it is important to understand the drawbacks of going through debt review. So the following are cons you need to understand and consider before signing up for debt review:
Debt review charges
There are charges associated with signing up for dent review. However, the good thing is that these charges are regulated by the National Credit Regulator (NCR) and are part of your repayment plan. For some individuals, swallowing paying small extra service charges can be challenging while in such a financial state.
Still, it’s important to factor in the benefits of debt review services. Afterward, the cost of losing important assets such as your car, home, etc., may significantly exceed these small charges.
Secondly, regarding the financed car, all debt needs to be included under debt counseling unless a particular creditor has started with legal activity.
A client remains under debt review until all the debt is settled or opts to withdraw. Unfortunately, the clearance certificate is only issued once all debt is paid off.
Once you’ve begun the debt review process, all the credit bureaus will receive notice that suspends your access to new credit. This limits you from taking on new debts until you’ve settled all your debts. While this seems to be a limitation to many, it’s easy to understand how this requirement prevents you from misusing your new financial security and accelerates the recovery process.
It may not be applicable.
In most cases, it’s not possible to apply for debt counseling. For example, debt review is only applicable for over-indebted individuals. If a debt counselor evaluates your case and determines that you are not over-indebted, meaning that you cannot pay your current debts with proper discipline, you’ll stand by your own. Additionally, you can apply for debt review without a stable financial income. Individuals without income are usually those who need debt relief, but debt counseling is not an applicable choice for them.
Only for South African citizens
Debt counseling was introduced by the National credit act to help South African credit users to settle their debts. Therefore, to qualify for debt review, you must have a South African ID or passport.
Only applicable if you are unable to meet your financial obligations on time
Debt review is only for those who are unable to meet end needs. A debt counselor negotiates lower interest rates and extends payment terms with your credit providers to help you settle all your debts and cover your daily expenses.
Your spouse must have a stable income.
Unfortunately, to qualify for debt review, neither you nor your spouse must be employed. Not just employed, but employed with a steady income in order to make a sensible offer to your creditors.
If it’s decided that you are not over-indebted, you won’t qualify for the debt review. In this instance, you’ll receive a rejection letter to confirm why your application has been declined.
It can be a lengthy procedure to quit
You can only exit debt review by:
Settling all the debt, which can be challenging. Additionally, you must present the application to the court that you’re no longer over-indebted.
It needs more commitment.
Debt counseling needs more commitment since you can’t avoid the payments. And as mentioned before, if you default on the payments, your creditors will take legal actions against you.
The fear of incompetence debt counselors
You may fall into the hands of an incompetent debt counselor. Therefore you need to be always cautious and ensure that you are working with the right debt counselor. Apart from being industry experienced, debts counselors should always have a good reputation.
A company doesn’t give debt counseling.
Debt counseling is dictated based on the National Credit Act, which states that a debt counselor can only be a natural person.
Some highly reputable debt counseling companies seek business through spamming consumers and promise to lower installments to credit providers by up to 60%. Applications are operated by call center agents. These agents are often not registered debt counselors.
The NCR has called off the registration of debt counselors who have assigned their duties to call center agents or individuals who are not registered debt counselors.
Two years ago, the NCR stated that it was considering the legitimacy of the business model used by debt counselors in the call center.
Consumers of these companies have complained that they’ve never interacted with the debt counselor whose name appears on their court papers. And whenever they called the company, they dealt with a different person.
Is debt review a good thing?
If you are in a tough financial position, you may think of several ideas to get you out of this fierce situation. Naturally, the question “is debt review a good thing?” may pop into your mind while figuring out other solutions. To answer this critical question, debt review has been proved to be the perfect way to solve financial crisis. If you’ve reached the point of asking yourself whether a debt review is a good idea or not, you are likely to need a debt review. So, the simplest question is “YES.” Debt counseling is perfect strategy for those struggling to meet their monthly financial responsibility. Additionally, it is the safest way to settle massive debt and live a debt-free life.
What are the consequences of being under debt review?
Before choosing debt counseling as your debt repayment strategy, it is good to know that the application has its own consequences. And one of the impacts is that you’ll no longer take more credit apart from consolidation loans until you are found not to be over-indebted.
Additionally, you may not be protected from all debts. Once the debt counseling process commences, you’ll be protected by the NCA and your firm from creditors, lenders, etc. you won’t defer on any of your payments, provided you meet your unified and consolidated payment toward the organization you are working with. However, you won’t be protected by debt review from cases when a credit provider has already started pursuing legal steps against you.
But debt review can still protect you from the repercussions of defaulting on other debts by including those into a newfound payment plan. It is a serious mistake to procrastinate on debt counseling until one of your credit providers comes for you. However, it’s not as worse as waiting until more creditors come for you.
What happens if you don’t pay debt review?
As tough as it might be, don’t miss the debt review payment. Remember, this legal process and your payment strategies have been accepted by all your credit providers. Additionally, the court order has been granted. Defaulting the plan means breaking the agreement, and your credit providers have the right to take legal action against you. As such, you may have to deal with the calls and letters again. Also, you’ll be risking your important assets like your car, home, and even your land.
This is your duty regarding a debt review application. From the commencement date, your debt review installment is due without non-remittance. You’ll face serious repercussions if you default on these payments.
How long does debt review stay on your name in South Africa?
A debt review can be completed within 36 to 60 months. However, many people usually complete the process earlier. How long the debt review stays on your name depends on how much debt you have. The more the debt, the longer the debt review will stay on your name. Thankfully, we can reduce the repayment time when our incomes increase and apply extra funds to repay our debts. Additionally, you can trim your expenses and use the difference to settle your debts.
Your debt counselor should determine the amount you can afford to spend monthly on debt repayment. With low monthly payments, the debt repayment will take longer.
Does debt review mean blacklisted
You won’t be blacklisted while under debt review. In fact, “blacklisted” is terminology that does not exist in the debt review. But if you were blacklisted before entering debt review, it will stay on your permanent record.
“Blacklisted is a term used by many folks but it really doesn’t exist. A credit record is a record of your credit history. If you default payments and get into arrears, your credit report will be affected, which will lower your credit score. On the other hand, regular payment will positively affect your credit score. This will boost your credit score. So, in other words, you cannot really be blacklisted. It only affects your credit score.
Can debt review be canceled?
You can exit debt review before form 17.2 is issued by giving a written instruction to the debt counselor. Once the 17.2 notice has been submitted, the withdrawal steps change. Once the debt counselor has validated that you are over-indebted to the creditors, you’ll have to start a formal court application to confirm to the court that you’re not over-indebted. After being granted such an application, the debt counselor will remove the debt review displayed on your credit profile by notifying the nation’s credit regulator. Failure to follow this process means that the debt review will remain on your credit profile until all your debts are settled.
Can debt review affect credit score?
Although debt review impacts your credit score, it is not something to be afraid of. Those under debt review are often listed on all credit bureaus as “under debt review.” this prevents them from getting into more debts until they’ve settled all their current debt accounts.
This has been established by the National Credit Act to help clients get out of debt. If you take more debts while under debt review, the process won’t work. After completing your debt review process and being issued a clearance certificate, your credit score sets back to zero. With that, you’ll have to start rebuilding your credit score. And this is the only thing many people are afraid of as far as credit score is concerned.
How do I check my debt review flag?
Once your debt review application has gone through, all credit bureaus will be notified. Your name will be attached to the “under debt review” flag, which prevents you from getting into more debts while still under debt review. To check your debt review flag, you first begin by checking your credit status. And this can be done by requesting your credit report from a credit bureau such as TransUnion or Experian. It’s important to do this once a year, or else you’ll incur a few rands – it is advisable to check with your chosen service provider before you could request your report.
The debt review status is indicated on the front of the report, and if you are not currently administered under debt review, your report won’t indicate a debt review status.
Can banks discriminate after debt review?
What to keep in mind is that banks do not discriminate against insolvent parties. They only discriminate against review parties. While the act protects consumers against discrimination regarding the credit, it does so with regard to the Promotion of Equality and the Prevention of Unfair Discrimination Act. Section 60 entails the right to apply for credit to any natural person.
The same section entails the right to reject entering into a credit agreement with a consumer in sensible commercial field accordant with its risk management activities. Additionally, it lays out that the section doesn’t entail the right to require a creditor to enter into a credit agreement.
Creditors usually consider several aspects, such as insolvency and debt review. However, consumers have the right to the reason for the credit being declined, and it is advisable to meet the creditor and apply it face to face.
Once you’ve received your clearance certificate, you should be able to make a credit application since your credit report is adjusted for the accounts listed on your clearance certificate.
Can I start a business while under debt review?
While under debt review, you should focus on getting yourself in a better financial position. While it can be possible to set up a business while under debt review, you’ll not be able to get a business loan or loan from registered creditors. In other words, applying for debt review will limit you from acquiring any credit loan. So, setting up a business while in this financial position is one major mistake that can lead to financial flow problems or even bankruptcy. Being in debt review means avoiding incurring more debt. It also means working towards living a debt-free life to help you embark on your future projects. Therefore, the simplest answer to the question is “Yes,” but not a good idea.
How long after debt review can you buy a house?
House purchasing is a massive investment that primarily depends on your financial stability. There are many factors considered, given your recent financial struggle.
Buying a house after settling a debt review can be challenging, and it means acquiring other credit loans to fund your purchase. However, it is not advisable to run for credit loans after receiving your clearance certificate.
Creditors usually don’t offer their services directly to clients who have recently come out of debt review. Therefore, it I important to focus on rebuilding your credit score before acquiring loans from creditors again. Simply, you can wait for three to four months before applying for a new credit loan to fund your purchase.
Can debt review affect employment?
While under debt, many individuals have faced many difficulties in the past regarding employment. That’s because when debt review came into effect, many employees did not understand how it worked. However, debt review nowadays has no impact on employment. It either does not affect future employment. Many employers view debt review as a positive rehabilitation act to settle debts. Being a voluntary process, applying for debt review shows your employer that you are becoming responsible for your financial position. Managing your financial position is important, especially for those entailing in money management and financial products.
For the unemployed, debt review shows your prospective employers that you are financially responsible. Therefore, the debt review impacts on employment are nearly all positive.
Can you be denied a job because of a debt review?
As mentioned before, debt review should not negatively impact your current job or future employment. In fact, it should speed up your process of getting a new job opportunity as it shows how responsible you are. Many people claim that they’ve been denied job opportunities due to their debt review status. However, you may only be denied a job application if you are applying for a job in a financial position where you’ll have access to company funds. For sure, the company will see its financial position being at risk. And this makes sense for any organization as they are responsible for their financial position.
Can I sell my car while under debt review?
Simply yes, but there are factors to consider, including the value of the car. As a reminder, being under debt review means you can no longer acquire more credit loans, living you in some financial struggles.
Selling a car while under debt is a lengthy and complex process that needs a second thought. While under debt review, you must have a sale approved by the bank, which entails submitting a written offer from the buyer and needing you to pay a VAT on the sale. If the amount you receive doesn’t fully cover the remaining amount of the loan, then this will be included in the debt review.
Can your car be repossessed while under debt review?
One of the main objectives of debt review is to prevent consumers from losing their properties through repossession. When you enter the debt review, the National Credit Act protects all your assets. Therefore, none of your assets will be repossessed while under debt review.
Your debt counselor and the creditor will negotiate to come up with an affordable repayment plan. Your interest rates and payments will be negotiated for you to pay what you can afford.
Entering debt review allows you to settle all your debts (including car repayment) until you are debt-free. Also, through this, your creditors won’t hassle you, guaranteeing you less stress.
But also, keep in mind that your car can still be under repossession risk if you’ve received a letter of demand and you’ve not applied for debt review within 10 days. Also, if you don’t keep up your side of debt review and default on some payments you may still be at risk of losing your car.
Can you go to jail for debt review in South Africa
It is often a tough financial situation. However, you should never miss debt review payments. Well, you may not be arrested. However, you’ll be issued a section 129 letter, which proves that you have arrears. Later you’ll be summoned, and if you ignore it will be followed by default judgment.
At this point, the warrant execution will be submitted, and your assets may be repossessed and sold to cover the debts. If you don’t have any assets, you’ll have to attend court. In the court, the magistrate will decide what you must pay to each credit provider. If you don’t stick to this ruling, a garnishee order can be established where your salary will be cut before reaching your bank account. If you quit the job to get away with this ruling, your home will be repossessed to your remaining debts.
Can I remove my name under debt review?
Removing your name under debt review is a lengthy process that needs experts to help you. The first step is to terminate debt review and get your debt review listing cleared from your credit profile. And this can be achieved by contacting a registered debt counselor. The debt counselor will examine your indebtedness state and come up with recommendations. Later, your application will be referred to a registered attorney for legal preparation.
The attorney will play his part in legal preparation and legal presentation and certify that all the affirmations are signed.
Thereafter, the decision will be made in court, and if everything goes in your favor, the debt review listing will be cleared from your credit profile, and you’ll be able to acquire new credit.
Can I get a loan while I am under debt review?
Definitely NO. You cannot acquire any loan while still under debt review because all credit bureaus will be notified when you enter the debt review. Due to this, no any responsible lender can approve your loan application as they will be aware that you are over-indebted and you in debt review.
Entering debt review means you are already struggling to settle your debts. Any esteemed creditor must check your credit history before carrying on with your application whenever you apply for a loan. If they cooperate with NCA and NCR, your application will be declined immediately after seeing your credit status.
According to the National Credit Act, if a creditor approves a loan application from a debt review individual, then the creditors are guilty of incautious lending.
The bottom line
Debt review was established to help consumers ensure that credit providers are paid what they’re due. With debt review, your credit providers accept extended payment terms and lower repayments. The main objection of the process is to raise the whole nation and ensure that every citizen is out of the substantial debt. Being a legal process, debt review has its own consequences despite being authentic. It may impact your credit records, and you may not be able to acquire other credit loans. However, its positivity outweighs its negativities. Millions of South African citizens have already done the application, and they’re currently debt-free. This makes a perfect strategy for over-indebted individuals, and for sure, it works.