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Debt review can turn your life around

Nov 17 2014 15:03

Cape Town - It is important to know the do’s and don’ts of being under debt review, according to Bruce Fleming, a Certified Financial Planner (CFP®) and the 2014 Financial Planning Institute (FPI) financial planner of the year.

He answers some frequently asked questions.

What does it mean to be under debt review?

Debt review was introduced in 2007 with the National Credit Act. It is there to assist people who are so indebted through repayments on their houses, cars, credit cards and accounts and are facing possible blacklisting.

Being under debt review, therefore, means you have appointed a debt councillor, who has determined that you are over-indebted and debt stressed.

He or she would have informed your creditors and the credit bureaus and drawn up an interim repayment plan. This plan would be submitted to a registered payment distribution agency (PDA).

During the first 60 business days, legal action cannot be taken against you in respect of your debts under review.

Once all your debts have been repaid, you will be issued with a clearance certificate by your debt councellor and he or she will notify the credit bureaus that you are no longer under debt counselling.   

Debt counselling is not like blacklisting and will be removed from your record once all debt is paid off.

What should I not do when under debt review?

Whilst under debt review it is important to stick to your repayment plan as skipping a debt review agreement payment will annul the agreement.

You should not use your credit cards or apply for unsecured loans as this will put you at more risk of having your whole debt review programme terminated.

You need to bear in mind that you will not be able to get a legal, registered loan while you are under debt review.

What should I do when under debt review?

While under debt review, you should stick to the repayment plan and not put your debt review programme at risk. Remember that debt review is not a blacklisting but a protection that was put in place to assist those that are debt stressed.

It will be removed completely once all debt is paid off.

What changes should I make to my finances during and after debt review?

You should look at the debt review process as a way of turning your life around. It is a proactive step in dealing with serious indebtedness before any legal process takes place.

For this reason, you should re-look your budget, not only while under debt review, but also into the future when all debt is paid off.

Once your debt is paid off, you should be careful to not go back into debt and start the cycle again.

Use the surplus you now have (the money you were using to pay off your debt) to save. It is far better to have savings than debt.

A Certified Financial Planner® is a professional who will be able to assist you with holistic financial planning to ensure you stay on track with your financial goals.

What will happen if I do not go under debt review?

You can go to your credit providers and make your own arrangements with them if you have a short term cash flow problem. If you have an agreement in writing with them, you will be protected from legal action as long as you stick to the agreement.

If a credit provider(s) issues you with a section 129 letter of default - this is the letter that the credit provider must issue to the consumer to advise of the payment default before instituting legal action - you will have ten working days to negotiate to bring your payments up to date.

If you do not respond to this, the credit provider(s) will in all likelihood follow this with a summons and possible judgment may ensue.

If your total debt is less than R50 000 you may apply to go under administration. The administrator will apply to the magistrates court for an order placing you under administration.

According to the National Debt Mediation Association (NDMA), administrators are not regulated. As such, you may find many irregularities where administrators don’t pay funds over to creditors or they pay them irregularly, which leads to additional interest for you.

Unless there are no other options, the NDMA does not recommend this.

If you choose not to go under debt review, you have the option of voluntary sequestration. This is a high court application, which will be handled by an attorney.

This can be very expensive as the high court will only grant a sequestration order if the providers will get between 10 cents and 20c in the rand.

Additionally, the court will not grant the order if the debtor cannot show “benefit to his creditors” so this debt mechanism is usually advisable to debtors with substantial assets.

If you do not choose any of the above, the credit provider may take legal action in the form of a forced sequestration. This is when credit providers take legal action against a person and they find the person does not have substantial assets, then the credit provider(s) themselves sequestrate the person.  

In both cases of sequestration, your assets will in all likelihood be sold to pay your credit provider(s).

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money  |  money management  |  debt  |  debt review
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