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The National Credit Act states: “A consumer is over-indebted if the preponderance of available information at the time a determination is made indicates that the particular consumer is or will be unable to satisfy in a timely manner all the obligations under all the credit agreements to which the consumer is a party, having regard to that consumer’s (a) financial means, prospects and obligations; and (b) probable propensity to satisfy in a timely manner all the obligations under all the credit agreements to which the consumer is a party, as indicated by the consumer’s history of debt repayment.”

Debt counselling is a regulated process whereby a qualified debt counsellor registered with the National Credit Regulator negotiates, on your behalf, with all your creditors, to have the term of each credit agreement extended and the instalments reduced. Your debt counsellor may also persuade your creditors to reduce the interest rates on your credit agreements so that you can afford to pay off all your debt as soon as possible. The debt counsellor then structures a customised plan that consolidates your debt in a single monthly payment and allows for essential household expenses.

When you apply to a debt counsellor to be declared over-indebted, he or she immediately sends a notice to your creditors and all credit bureaus, informing them that you’ve applied for debt review. This is a legal procedure and your application is then noted on your credit report. The effect of this is that you can’t take on any more credit other than a consolidation loan until the debt counsellor has rejected your application or a magistrate has found that you’re not over-indebted.

There are certain conditions and criteria when applying for and undergoing debt counselling:

  1. You need to have a stable form of monthly income.
  2. need to be approved by the debt counsellor as being over-indebted, according to the definition in the regulations. If you fail to meet the criteria, you will not be allowed to go under debt counselling.
  3. There are fees involved. These fees are regulated by the NCR. Debt counsellors cannot simply charge what they want.
  4. Once you are on the programme, you have to stick to it. Your monthly payments will be reduced, but you can’t miss a single one. If you do, the agreement the debt counsellor has negotiated with your creditors (which then is ratified by court order) will fall away.
  5. You will have no further access to credit until you have completed the programme and cleared your name.

The length of the programme depends on the amount owed to creditors. It can take three to five years. You can make additional payments to your creditors during the process – for example, when you receive a bonus or 13th cheque.  All your debts, apart from your home loan, must be settled before you can exit the programme. You must be able to pay the original instalment on your home loan.

At the end of the process, you will receive a clearance certificate that will require your creditors and the credit bureaus to remove any information about the debt review and your previous unpaid debts from their systems.

Although the court or Tribunal may order that the consumer is over-indebted, it remains the responsibility of the consumer to ensure that payments are made in terms of the proposal and or granted order each month and that they should request a statement from the Debt Counsellor or PDA to pick up on any issues of non-payment before the credit providers terminate and proceed with legal action.