Debt Counselling & How it Works

Is debt councelling for me?

 

Debt Counselling is a formal legal process that provides for a consumer to be declared over indebted and for the Debt Counsellor to negotiate a restructured payment plan and obtain a court order confirming the new repayment plan. The Debt Counsellor must be registered with the National Credit Regulator and have an NCRDC number. The NDMA uses the services of a registered debt counsellor.

 

Once declared over indebted and accepted into debt counselling the following will happen:

  • You will be protected from legal action for a period of 60 days from the day of application and after the arrangement has been concluded as long as you pay according to the new arrangement;
  • All your creditors will have to stop calling you and liaise with your debt counsellor;
  • You will be listed at the Credit Bureau as being under debt counselling;

 

For as long as you are under debt counselling you will not be allowed to get credit until you are issued with a Clearance Certificate once you have satisfied your obligations as per the Court or Tribunal order and in line with the National Credit Act.

 

The overall objectives for the DEBT COUNSELLOR is to:

 

  • Assess the full extent of your debt situation
  • Assess your assets that may be taken into account
  • Provide a debt remedy that:
  • Provide you with an acceptable standard of living while repaying your debts according to your affordability – this includes retaining the home and a vehicle where possible;
  • Provide you with an agreed, affordable and realistic monthly budget in order to resolve the situation in the shortest possible time;
  • Provide a repayment scheme acceptable to your creditors and confirmed by the Court;
  • Prevent repossession of assets where possible;
  • Rehabilitate you without detriment for the future; and
  • Allow you to get on with your life.

 

The overall objectives for YOU should be:

  • To work honestly and openly with the debt counsellor;
  • Declare all assets and liabilities – including all incomes and debts, and including bonuses and salary increases;
  • To pay the registration and debt counselling fees as disclosed at the first meeting;
  • To adhere to the agreed instalments and to pay these at the agreed dates;
  • To keep in regular contact with the debt counsellor for the full length of the agreement; and
  • To agree and commit to the debt remedy – this may include surrendering credit cards, closing accounts and realising some assets.

 

The overall objectives for your CREDITORS should be:

  • To work with the debt counsellor to assist in the normalisation of the debt;
  • To favourably consider the repayment proposal;
  • To ensure the consumer is assisted in a fair and unbiased way throughout the process of repayment;
  • To assist the consumer to rehabilitate as soon as possible; and
  • To assist the consumer to restore his/her credit worthiness as soon as possible.

 

 

Will I have to pay for the service?

 

Yes – the service is not free, there are recommended fees laid down by the National Credit Regulator (NCR) and the fee guidelines are available from the NCR website at www.ncr.org.za. How these fees are paid is explained in the table below.

DEBT COUNSELLING FEE GUIDELINES
Debt Counselling Fee Guidelines Approved Fees
1. A Debt Counsellor may receive the following fees in respect of consumers who have applied for debt counselling:
1.1. An application fee, limited to the amount prescribed in terms of Schedule 2 (2) of the Act, recoverable directly from the consumer upon receiving an application for debt review; R50
1.2. A rejection fee of R300.00 (excluding VAT) in respect of consumers whose applications have been rejected in terms of section 86(7)(a); R300 (excl vat)
1.3. A restructuring fee of the lesser of the first instalment of the debt re-arrangement plan in respect of a consumer whose applications have been accepted in terms of 86(7) (b) or 86(7) (c).
       Maximum allowable fee for a Single Application (Once off) R6000 (excl vat)
       Joint Application (Once off) R6000 (excl vat)
1.3.1. 100% of the fee is payable at the first instalment. Yes
1.4. Should a Debt Counsellor fail to submit proposals to Credit Providers or refer the matter to a Tribunal or a Magistrate Court within 60 business days from date of the debt review application the Debt Counsellor has to refund 100% of the fee paid by the consumer (excluding the application fee). 100%
1.5. A monthly after-care fee payable to the DC 5% up to a max of R400 (excl VAT) for the first 24 months, thereafter reducing to 3% to a max of R400 (excl VAT).
1.5.1. Payment of the monthly after-care fee is to commence in the 2nd month after the amount in 1.3.1 above has been paid. Yes
1.6. Should the consumer withdraw from the process after completing stages 1.3 above, a fee equal to 75% of the restructuring fee as per 1.3 above is payable by the consumer. Yes
1.7. Legal Fees A legal fee for a consent order of R750. Any additional legal fees to be negotiated separately with the consumer and the DC must be able to produce pro-forma invoices.

 

Visiting the Debt Counsellor

Before you visit the debt counsellor you will need to gather together the following documents:

  1. Copy of your identity document/passport
  2. A copy of your most recent salary/wage slip (If you receive overtime or allowances that are not of a regular nature then the last 6 months are required to determine an average)
  3. Your most recent creditor statements and credit cards
  4. Your last three months bank statements for all your bank and investment accounts
  5. Your last two months credit card statements for each of your cards
  6. Your latest statement reflecting your home loan balance
  7. A list of other debts from friends or family members

 

If you and your spouse/partner share your income and expenses or are married in Community of Property then:

 

  1. A copy of your spouse/partner’s most recent salary/wage slip (if you receive overtime or allowances that are not of a regular nature then the last 6 months’ are required to determine an average)
  2. Your most recent creditor statements and credit cards
  3. Your last two months bank statements for all your bank and investment accounts
  4. Your last two months credit card statements for each of your cards

 

Explaining the assessment process/outcome/notification

  1. When a consumer applies for Debt Review, a debt counsellor is required to inform all credit providers and credit bureaux of the application within 5 business days after accepting the application.
  2. Within 5 business days of receiving this notification (which is done by means of a “Form 17.1” sent to the credit providers and credit bureaux by the debt counsellor), the Credit Provider is required to provide a Certificate of Balance (COB) providing the debt counsellor with account information required for the assessment. This information assists the debt counsellor to do an accurate affordability assessment, and thereafter provide an accurate declaration of whether the consumer is over-indebted.
  3. The debt counsellor should conduct an assessment in accordance with the NCA regulations to determine if the consumer is over-indebted and to determine the amount available to repay debt.
  4. If the consumer is found by the debt counsellor not to be over-indebted or not to be legally eligible for debt review, the debt counsellor will reject the application and send a “Form 17.2” to the credit providers and Credit Bureaux, marking the paragraph that confirms that the consumer is not over-indebted.
  5. If the consumer is found by the debt counsellor to be over-indebted and legally eligible to be under debt review, the debt counsellor should, within 30 days of the consumers application notify both the Credit Provider/s and the Credit Bureaus that the consumer is indeed over-indebted and the debt counsellor will inform all parties by means of the “Form 17.2” notice, marking the appropriate paragraph that confirms over-indebtedness.

 

 Payment Distribution Agents

Once accepted under debt counselling you will pay one instalment which will then be distributed to your credit providers by a Payment Distribution Agent. The PDA is also responsible for the provision of monthly statements to consumers and payment schedules to debt counsellors, employers and credit providers as well as attending to queries from the respective parties. As a consumer you can choose to continue to pay your creditors directly and not use a PDA.

 

If you opt to make direct payments you should be aware of the following:

 

  1. You remain responsible to make all payments as re-arranged, in full and on time.
  2. Proof of payments must be sent to the debt counsellor on a monthly basis for record keeping and to enable provision of after care service as a consumer cannot be under debt review without a debt counsellor.
  3. Consequences of making short or late payments(e.g. risk of termination by credit providers)
  4. Debt counselling fees are payable to a debt counsellor for services rendered and this includes payment of aftercare fees.
  5. For a debt counsellor to issue a clearance certificate, all after care fees must be up to date.
  6. Where the debt counsellor has suspended provision of service, a consumer must provide proof of settlement letters from credit providers for a debt counsellor to issue a clearance certificate.

 

Termination (Cancellation) of Debt Review

Under certain circumstances a credit provider can withdraw a credit agreement from debt counselling (Terminate) and proceed with legal action. Termination can happen if you default on your debt counselling payments or if your debt counsellor does not finalise the process within the prescribed time limits.

 

The Credit Amendment Act, 19 of 2014 determines that a credit provider is not entitled to terminate  debt review after the debt counsellor has referred the matter to the Magistrate’s Court for a debt review order while the hearing is still pending.

 

Clearance Certificates

 

In terms of section 71(2)(b)(i) of the NCA, a debt counsellor must issue a Clearance Certificate (Form 19) if the consumer has fully satisfied all the debt obligations under every credit agreement that was subject to the debt re-arrangement order or agreement. Once a Clearance Certificate has been issued Credit Bureaus will be required to remove all the information relating to debt counselling and you can then start getting credit again.

The National Credit Amendment Act now  allows you to finish debt counselling early after you have settled your unsecured loans and cleared your arrears on the Home loan. It prescribes that:

 

(1) A Consumer whose debts have been re-arranged in terms of Part D of this Chapter must be issued

with a Clearance Certificate by a Debt Counsellor within seven days after the Consumer has –

 

(a) Satisfied all the obligations under every credit agreement that was subject to that debt Re-arrangement order or agreement in accordance with that order or arrangement; or

(b) Demonstrated:

(i) Financial ability to satisfy the future obligations in terms of the re-arrangement order or

agreement under-

(aa) a mortgage agreement which secures a credit agreement for the purchase or improvement of immovable property; or

(bb) any long term agreement as may be prescribed;

(ii) that there are no arrears on the re-arrangement contemplated in subparagraph (i);

and

(iii) that all obligations under every credit agreement included in the re-arrangement order or

agreement other than those contemplated in subparagraph (i), have been settled in full.

 

Withdrawing from Debt Counselling

!!!!It is very important that you think very carefully about going under debt counselling because once you have been declared over indebted and accepted into the process it will be very difficult to withdraw from the process and even more difficult to remove the Debt Counselling flag from your credit bureau record. Below is an extract from the Guideline:

 

CAN A DEBT COUNSELLOR TERMINATE OR WITHDRAW DEBT REVIEW PROCESS?

A debt counsellor does not have statutory powers to terminate or withdraw the debt review process. This means that a debt counsellor can no longer issue Form 17.4 and update DHS with status G (Voluntary withdrawal by consumer) or H (Withdrawal by a debt counsellor). There is However varied ways in which a consumer can be withdrawn from debt review which will be set out below.

 

CAN A CONSUMER WITHDRAW FROM DEBT REVIEW PROCESS ONCE A DEBT REVIEW COURT ORDER HAS BEEN OBTAINED?

Once a debt review court order has been obtained a consumer cannot terminate or withdraw the debt review process, they can however approach the court to rescind the order or apply for an order which declares that the consumer is no longer over-indebted. Upon receipt of the order, a debt counsellor will notify the credit providers of the withdrawal by means of Form 17.W and update DHS with status G.

 

CAN A CONSUMER WITHDRAW OR TERMINATE DEBT REVIEW PROCESS PRIOR TO OBTAINING DEBT REVIEW COURT ORDER?

Consumers can only withdraw or terminate the debt review process prior to declaration of over indebtedness as per section 86(7) of the Act and issuance of Form 17.2 subject to payment of debt counselling fees as per NCR Debt Counselling Fee Guidelines. If a determination is made and no court order is in place, the consumer will remain under debt review. A debt counsellor will notify the credit providers of the withdrawal by means of Form 17.W and update DHS with status G.

 

CAN A CONSUMER BE TRANSFERRED TO ANOTHER DEBT COUNSELLOR?

A consumer under debt review may be transferred to another debt counsellor subject to payment of all debt counselling fees where it has been established that the previous debt counsellor followed the correct process. • Form 17.7 should be used to facilitate this process.