Debt: Know your options

Moeshfieka Botha
2013-06-21 17:29
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Cape Town - There are over 20 million credit active consumers. It is vitally important that they know what their options are with regard to their debt.

Debt experts agree that only once people are properly informed, will they be able to make the correct financial decisions.

The options recognised by the National Credit Regulator (NCR) and the National Debt Mediation Association (NDMA) are:

Voluntary arrangements with your credit providers 

If you have a temporary cash flow problem that will affect the payment of your accounts, it is advisable to contact your creditors yourself.

* Explain your situation to them.
* Negotiate for lower repayments over a specific time period.
* Do not default on your renegotiated payments.
* Voluntarily arrangements are not necessarily noted on your credit profile.
* Depending on your overall credit record, you might be able to access more credit.

Please note that your creditors are under no obligation to accept voluntary arrangements.

Debt Counselling

The National Credit Act (NCA) came into effect on July 1 2007 and it makes provision for over-indebted consumers to go under debt review.

* Debt counsellors will negotiate with your creditors for lower monthly repayments.
* You should have more money available for everyday living expenses.
* There is an upfront fee as well as a continuous after-care fee payable to your debt counsellor.
* Once you have a consent order and you do not skip paying the lower, stipulated amounts your assets will be legally protected.
* You will be “flagged” at the credit bureaus and will not be able to access any further credit until all your debt is paid and you have a clearance certificate.

Administration

If your total debt is  less than R50 000 you can apply to go under Administration. The administrator will apply to the Magistrates Court for an administration order.

* Administration will get noted on your credit record until all your debt is paid off.
* You will not be able to access more credit.
* The fees and interest rates are very high. Irregularities are rife in the industry.
* It is recommended as a last resort.

Voluntary Sequestration

If a person is so over-indebted that no reasonable proposal can be made to the credit providers, then a client might be referred for Sequestration. Sequestration is a high court application that has to be handled by an attorney.

* This option can be very expensive as the court will only grant a sequestration order if the credit providers will get between 10 and 20 cents of every rand.
* The legal and rehabilitation fees can be very high.
* The court will not grant the order if the debtor cannot show “benefit to his creditors”.
* This debt mechanism is usually advisable to debtors with substantial assets.

Forced Sequestration

When credit providers take legal action against a client they might find that the client doesn’t have any substantial assets and that the client is a “person of straw”. Then the credit providers might take it upon themselves to sequestrate the client.

- Fin24

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