Removal from Debt Review
10 May 2023
The National Credit Act (NCA) provides for a mechanism known as debt review, which offers consumers a means of restructuring their debts and avoiding the consequences of default, such as legal action and blacklisting. However, it is not uncommon for debt review to be a lengthy process, sometimes taking several years to complete. In some cases, individuals may find that their financial circumstances improve during this time, and they can settle their debts in full or negotiate new payment terms with their creditors. In such situations, it may be appropriate to be removed from debt review. However, being removed from debt review is not automatic and requires compliance with specific criteria prescribed by case law and legislation.
Whether a consumer may be removed from the debt review process depends on whether an order of court has declared the consumer over-indebted.
If there is an order of court confirming that the consumer is over-indebted
The first step in being removed from debt review is to apply for a clearance certificate from the debt counsellor. A clearance certificate is issued when the consumer has paid all debts, as restructured under the debt review process.
The NCA provides that the debt counsellor may issue a clearance certificate. Once the certificate has been issued, the consumer is no longer under debt review, and their credit record can be updated accordingly.
However, not all consumers under debt review can obtain a clearance certificate. Sometimes, the consumer may have failed to make payments under the debt restructuring plan or incurred new debts while under debt review. As a result, the courts have held that a clearance certificate may only be issued if the consumer has fulfilled all their obligations under the debt restructuring plan and is no longer over-indebted.
If there has not been a court order declaring that the consumer is over-indebted
Section 86(7) of the NCA provides that a consumer may be removed from debt review if it can be shown that they can meet their obligations under all credit agreements as they fall due. However, the consumer must also show they can pay their living expenses and provide for dependents. This is a formal process requiring the individual to bring an application to court to be declared not over-indebted.
Section 86(7) of the NCA provides: “If, as a result of an assessment conducted in terms of subsection (6), a debt counsellor reasonably concludes that-
(a) the consumer is not over-indebted, the debt counsellor must reject the application, even if the debt counsellor has concluded that a particular credit agreement was reckless at the time it was entered into;
(b) the consumer is not over-indebted but is nevertheless experiencing, or likely to experience, difficulty satisfying all the consumer’s obligations under credit agreements in a timely manner, the debt counsellor may recommend that the consumer and the respective credit providers voluntarily consider and agree on a plan of debt re-arrangement; or
(c) the consumer is over-indebted, the debt counsellor may issue a proposal recommending that the Magistrate’s Court make either or both of the following orders-
(i) that one or more of the consumer’s credit agreements be declared to be reckless credit if the debt counsellor has concluded that those agreements appear to be reckless;
(ii) and that one or more of the consumer’s obligations be re-arranged by-
(aa) extending the period of the agreement and reducing the amount of each payment due accordingly;
(bb) postponing during a specified period the dates on which payments are due under the agreement;
(cc) extending the period of the agreement and postponing during a specified period the dates on which payments are due under the agreement; or
(dd) recalculating the consumer’s obligations because of contraven- tions of Part A or B of Chapter 5, or Part A of Chapter 6.”
In conclusion, being removed from debt review in South Africa requires compliance with specific criteria as prescribed by case law and legislation. Consumers who have paid off all their debts may apply for a clearance certificate from the debt counsellor. However, those who have failed to meet their obligations under the debt restructuring plan, or have incurred new debts may need to apply to court for an order declaring that they are no longer over-indebted.
So, if you find yourself in this position, why not contact an attorney at SchoemanLaw to assist in your legal needs?
Contact an attorney at SchoemanLaw for your legal needs.
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