I have been under debt review since April this year and we have already made proposals to all my creditors for future payments. All creditors have accepted the new payment structure except for FNB who is financing my house.
Today I received a letter from FNB saying that they are terminating the debt review process due to them not agreeing to the suggested payment amount. They are proposing that I continue paying the same instalment I have been paying before going under review. Effectively, they are rejecting the process of debt review, because they don't want to make any considerations even when it is proven that I am over-indebted.
My debt counsellor wants to go straight to court to challenge FNB, but I am a bit unsure about the outcome of such a move. What is the likely outcome when we go to court? Will the magistrate rule in my favour and if he doesn't, does it mean the bank might make a move on my house?Alan Manshon, a registered debt counsellor with the Cape Town-based debt advisory and financial education group The Money Clinic, responds:
Form Mpho's comments, I gather that the debt counsellor had implemented the voluntary debt review process.
This process allows the debt counsellor to negotiate directly with the credit providers in the hope of reaching an agreement with all parties. Should all parties have agreed, the debt counsellor would then approach the courts for a consent order.
Because in this case, FNB is not in agreement, the debt counsellor needs to refer the matter to court for a hearing.
As it would appear that the 60 business days has elapsed, Mpho needs to realise that without the protection of either the debt review process or the matter being before court, the risk is that the credit provider can proceed with legal enforcement.
In this case it is definitely in the consumer's interest to get the matter before court.
Unfortunately, without seeing the specifics of the case, I wouldn't be able to comment on how a magistrate may view the situation.
It has been my experience though that the courts do follow the spirit and intention of debt review as defined in the Act and are therefore not unsympathetic to the plight of over-indebted consumers.
I think the main concern for the courts is that the proposed restructure plan is reasonable.
My advice to Mpho would be to get the matter before court as a matter of urgency. Referring the matter to court is the next step in the debt review process, not a different process.
Mpho's situation, unfortunately, is not uncommon. Debt counsellors often experience this situation. In an effort to reach agreement on debt restructure, the debt counsellor has to enter into negotiations with the credit providers.
The National Credit Act, however, provides only 60 days for this with further strict deadlines within the process. Because the credit providers involvement in this process is voluntary, often their responses are delayed and fairly frequently, they do not provide responses.
Typically, to reach settlement, negotiations can take up to six months. However, as indicated, the protection that debt review affords is limited to 60 business days.
This means that a credit provider then has the right to terminate the debt review process unless the matter has been referred to court.
The debt counsellor does have a second option available which is referred to as the Involuntary Process. In this process, negotiation is not the objective. Once the debt counsellor has completed the assessment, their proposals are referred to court. The credit providers involvement in debt review is no longer voluntary and the decision to accept the debt counsellors proposals now rests with the court.
Although this process is much more efficient, it is not always as beneficial for either the consumer or credit provider as the Voluntary Process, because the magistrate cannot reduce interest rates unless they contravene the maximum rates prescribed in the NCA.