The Truth About Leaving Debt Review

In these tough economic times, many South Africans have found themselves sinking deeper into the dark trenches of over-indebtedness. Debt counselling, which was introduced by the National Credit Act to protect consumers when borrowing money from financial service providers, has been a much-needed lifeline for a lot of people. 

Under the debt review programme, a qualified debt counsellor negotiates a single, low monthly instalment for all debt obligations. This new repayment structure takes into account all existing household expenses, such as transport, rent, household utilities and groceries, while allowing the consumer to pay off their debt while still comfortably paying their monthly living costs.

According to CEO of National Debt Advisors (NDA), Charnel Collins, a large majority of consumers that leave the debt review programme, often return. “Many people enter the programme seeking immediate relief from debt collectors and creditors, only to exit before their debt is successfully repaid.

“As the ultimate goal of the programme, consumers are meant to reach a stage where they have paid off all their debts and can leave the programme with a fresh start in the credit world”, says Collins. She stresses the point that this can be short-sighted and possibly risky, as it leaves the consumer vulnerable to legal action from creditors and possibly even the repossession of assets via the courts.

A popular question from consumers in the programme is: when can I leave? In order to understand leaving debt review, one needs to first understand the processes involved in entering a programme. To begin, let’s look at the definition of debt review. It’s a legal, regulated process by the National Credit Regulator (NCR) which is ordered by a court of law. Leaving the programme is also channelled through these same avenues.

The NCR outlines the following guidelines for leaving debt review:

• Everything is done via the Magistrate court.

Firstly, the NCR clarifies that an order declaring an overindebted consumer under debt review cannot be granted by a High court, and similarly, it cannot process any pronunciations on whether the consumer should be removed from debt review either. All proceedings for debt review are done at the Magistrate court.

• Prior to a court order being granted.

As with all legal proceedings, a court order for declaring a consumer under debt review may take time. In the meanwhile, a qualified debt counsellor may have already declared a consumer over-indebted and proceeded to restructure their repayment terms, together with their creditors.

In instances where a court order has not yet been granted and a consumer, together with their debt counsellor that they are fit to manage their debt obligations, then the debt counsellor will present the facts to the court in the hopes of getting the court order rejected.

Examples of when this can happen are in cases of increased income, or a windfall of cash that assists in settling a large portion of the consumers’ debts.

• After a court order has been granted.

As per latest NCR regulations released earlier this year, the only way consumers may exit debt review after a court order has been granted is if they have settled all their debts as per restructured agreement, with the exception of a home loan.

Note that while the restructured agreement is meant to assist the consumer at the beginning of their debt review journey, should the consumer’s financial circumstances improve, this can be communicated to the debt counsellor, which means the process of debt review could end sooner than the initial agreement.

Once a consumer has settled all of their debt, their debt counsellor issues a clearance certificate within seven working days, and this is submitted to all the credit bureaus who then remove the debt review flag which sets their credit score back to zero. With a clean slate the consumer is now free to re-enter the credit market.

“An important aspect of the debt review programme is its rejection of consumers to accumulate further debt while paying off their existing debt,” says Collins. “This trains the consumer to adopt healthier financial management habits, such as saving and budgeting.”

This is especially important because as they re-enter the credit market with a credit score of zero, they have to gradually build it up again. This can be done by adopting wise credit management habits such as only spending money on things that are affordable and strictly sticking to a budget. “This is where consumers need to be careful so as not end up in debt review again,” says Collins.

She further highlights how debt review can be a lifeline for consumers who are overwhelmed by their debt obligations. It can provide a breathing ground to cover household expenses, protect them from creditor harassment and prevent their assets from repossession.

Collins concludes, “One of the greatest gifts that debt review offers consumers is the financial education to better manage their personal finances. With this knowledge, they not only become debt free, but they can also achieve financial freedom”.