Debt Relief Options

Debt and Over-indebtedness – The Debt ‘Spiral’


Retrenchment, death in the family, illness, divorce and other life events can negatively impact on your ability to meet your monthly debt repayment obligations. Sometimes a lack of proper budgeting and planning can make the situation worse. It is important that if you are in this situation that you take early action and not wait until the credit provider takes legal action.


Suddenly you are using one credit card to pay another, getting an additional loan on your bond and taking out a personal loan to pay off all those accounts. The situation is out of control and you are in arrears on your car payments, your house, credit cards and those clothing accounts. Or you bought a house and a motor vehicle when the interest rates were at 10% and within a very short period the interest rate went to 15,5%, with the instalments increasing to such a level that it has become a challenge to service your debt on a monthly basis.


Sensible borrowing within our budgetary and repayment limits allows us to provide a home, transport and a good standard of living for ourselves and our families. But when the debt begins to spiral to a point where you are supposed to pay back more than you and your partner earns – you are in trouble. And a solution seems beyond you. Anxiety arises from uncertainty. If you don’t know the outcome of a situation, it’s human nature for the mind to imagine the worst possible scenario.


Direct arrangements with your credit providers

If you have a cash flow problem that might probably only last a few months we suggest that you contact your credit providers yourself. Prepare an Income and Expenditure Statement and explain your situation and come to alternative arrangements with them. Make realistic arrangements so that you can stick to the payments agreed upon. However, if you can’t stick to the arrangements inform them and keep them up to date. Don’t just default without giving notice as this will lead to legal action being taken against you.


Section 129 negotiations

If a credit provider issues you with a section 129 letter, you have ten business days to negotiate to bring your payments up to date, this you can do yourself, through an alternative dispute resolution (ADR) agent or through a debt counsellor. The NDMA is has a registered debt counsellor who  can assist you to negotiate with your credit provider.


Court Annexed Mediation

Where a credit provider has already referred you to court and a judgment has not been made, the Courts in Gauteng and North West allow parties to request Mediation through the Clerck of the Court responsible for Mediation. The MInister of Justice has published a list of Mediators and Magauta Mphahlele one of the NDMA Mediators has been accredited to provide the Court Mediation. Should you require the NDMA’s intervention you can inform the Clerck of the Court that you choose Magauta Mphahlele to Mediate between you and your credit providers.


Section 86(7)(c) – Debt Counselling

The National Credit Act (NCA) came into effect on 1 July 2007 and it makes provision for debt counselling where over-indebted clients are assisted to restructure their debts according to the rules as set out in the Act. Debt Counselling is a complex process and you need to understand its full implications. Click here for a detailed explanation of the process.



If your total debts are less than R50 000 you can apply to go under Administration with an Administrator. The administrator will apply to the Magistrates Court for an order to place you under Administration. However, since Administrators are not regulated we daily find many irregularities where Administrators do not pay over funds to credit providers and if they do then only once every three months which means interest continues to run against you. Unless there are no other options we suggest that this option is used as a last resort.



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. A 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 fees can be anything starting from R10 000 for the initial application and rehabilitation (3 to 10 years after the first application) and this will be at least another R10 000. 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.


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.


What are the implications of each option?



FAQ Sec 129 Debt Relief Payment Assistance Administration Debt Counselling (DC) Sequestration Self Help
Will it get noted on my credit record Normal status of the account in terms of arrears, adverse information or judgment will be noted. If at any time you settle the account any adverse information or judgment must be removed within seven days of the credit bureau receiving the settlement letter. 5 years or until order is rescinded by a court. Yes and will only be removed once your DC has issued you with a clearance certificate after all your debts are paid off or the court order has been rescinded. Where you have a mortgage or other long term and prescribed agreement, after you have settled your unsecured debts and the arrears on your mortgage have been settled. Minimum 3-5 years. 5 years or until a rehabilitation order is granted(usually 3 to 10 years) Normal status of the account in terms of arrears, adverse information or judgment will be noted
Do I pay for the solution? Yes different companies charge different prices and collect the moneys differently. Compare fees and choose the most cost effective fee that allows you to allocate more money towards debt repayments and not the fees. Yes. There are regulated fees which are sometimes too high and keep you under administration for too long. Yes but there are no upfront fees. Allowed fees include an application fee, a restructuring fee and a monthly after care fee. The maximum restructuring fee is R6000. If you use a Payment Distribution Agent, then there are distribution fees. Yes. The Attorney handling the matter has to be paid. No. Cost relate to telephone calls or visits to the credit provider by yourself.
For whom would this solution be suitable? If you have a short-to medium term cash flow problem, have been issued with a section 129 notice or summons. Where a credit provider has taken legal action and obtained a judgment and wants to repossess or auction the property Clients with total debts of less than R50 000 and no other solution solves the problem. Clients who have long term and severe cash flow problems, have not been issued with a summons, have no need for credit in the medium to long terms and are declared over indebted after an assessment by a debt counsellor Clients who can offer credit providers around 20c of every Rand and who have ten to twenty thousand Rand available for legal fees and have sufficient assets to satisfy the 20c rule. If you have a short term cash flow problem and are able to engage with the credit providers to negotiate short term relief.
Can I get more credit? Yes depending on your credit record and affordability No No No Yes depending on your credit record and affordability
Will I have to sell my house / assets NO but you can choose to do so voluntarily. No Your assets are protected but you can choose to sell some off on a voluntary basis to improve cash flow. Yes, all your assets, excluding a few necessities will be sold NO but you can choose to do so voluntarily.