Grace Period Debt Counselling

Debt Review, Debt Restructuring, Debt Counselling? Is there a difference?

Debt counselling (review, restructuring) is in essence a legal process. These words refer to the same process but focus on different aspects of the same process. This is explained below. What is important that your debt is only restructured if you have a stamped court order or consent order in your possession. Certain steps in the process may be completed but if you have no court order or consent order in your possession, your debt review application means nothing and all the other steps are meaningless even if a credit provider has consented in writing – that consent is provided to be used by the debt counsellor to obtain a court order.

Debt Review is the status you are under while while your debt is reviewed and while you are paying off your debt as per the court order you will have in your possession.  This process starts with an application form you need to fill in and ends when your debt counsellor issues a clearance certificate. You will be flagged as being under debt review on all registered credit bureaus. This status will only be lifted once the credit bureaus are notified of clearance.

The National Credit Act speaks of Debt Counsellors who are registered by the National Credit Regulator (NCR). The letter and spirit of the National Credit Act is that consulting a debt counsellor creates an environment where you discuss your financial problems with a professional trained person who has the authority by law to engage with credit providers and courts to restructure a consumer’s debt.  Debt Counselling refers to this relationship.

Section 86 of the NCA allows for debt to be restructured. The debt counsellor will recommend a restructuring proposal to a Magistrate or a consent order to the National Consumer Tribunal (NCT). Once the order is granted the consumer’s debt is officially restructured. This is why this process is also called Debt Restructuring.

The Debt Review Process

How does the process to restructure your debt work?

STEP 1: MEET, UNDERSTAND AND APPLY:

The whole process starts with a consultation with a registered debt counsellor. During this initial consultation the debt review process is explained and the fees involved disclosed. This is also the opportunity for the consumer to ask all the questions he/she has in order to make an informed decision.

Once the consumer is comfortable to apply for debt review he applies on a prescribed form. Thereafter the application is registered with the NCR and the credit providers are notified in prescribed manner. They will on receipt of the official notification provide the debt counsellor with certificates of balance.

STEP 2: THE DEBT COUNSELLOR ASSESS “INDEBTEDNESS”:

Thereafter the debt counsellor uses all the data provided by the consumer on his application form and the certificates of balance provided by the credit providers to determine over-indebtedness. If the consumer is indeed over-indebted the application for debt review is successful. 

STEP 3:  THE CREDIT PROVIDERS ARE INFORMED OF THE SUCCESSFUL APPLICATION AND CONSUMER IS PLACED UNDER DEBT REVIEW:

The Credit Providers and Credit Bureaus are informed of the successful application.  The consumer’s status is being changed to “under debt review” and has protection for 60 working days against any negative action by his credit providers, They will expect a restructuring proposal from the debt counsellor. The 60 working days provide the window period where within the debt counsellor can negotiate restuctured payments and prepare a court application for a court order restructuring the consumer’s debt.

STEP 4: RESTRUCTURING OF DEBT OBLIGATIONS:

The debt counsellor proceeds to prepare a restructuring proposal that solves within a reasonable time.  The proposal will be discussed with the consumer and where needed possible adjustments to the consumer’s budget will be made. The restructuring proposal will be sent to the credit providers for their response who also may counter propose. During the proposal phase interaction between the debt counsellor and credit providers is important as well as interaction between the debt counsellor and the consumer(s).

STEP 5: FINALIZE THE PROCESS BY OBTAINING A DEBT RESTRUCTURING ORDER AS PER THE PROPOSAL:

Once the proposal stage is completed the debt counsellor will approach the court or NCT for a restructuring order as per the proposal made to the Credit Providers. Once the order is granted this whole legal process is completed. Please note that your debt is not restructured in the absence of a granted debt restructuring order.

How much does it cost to restructure my debt?

Debt counselling fees are regulated by the NCR and full disclosure there off can be found on the NCR’s website under their published guidelines.

There are two types of debt counselling fees. There are once-off fees and recurring monthly fees. The once-off fees must be paid in the first two months after the application date because distribution needs to start at the end of the third month after the application date to avoid termination of the process by the Credit Providers.

ONCE OFF FEES:

The 1st once-off fee is paid upfront on date of application. It is called the Application & Administration Fee. This fee amount is R350.00.

The 2nd once-off fee is called the Restructuring Fee which becomes payable at the end of the 1st month after date of application. This fee is equal to the new combined restructuring proposal instalment. If the applicants are married in community of property and the new instalment is more than R9000.00 the Restructuring fee is capped at R9000.00. If the application is a single application and the new instalment is more than R8000.00 the Restructuring Fee is capped at R8000.00.

The 3rd once off fee is called the Legal Fee. This fee is determined by the lawyer and may vary from lawyer to lawyer. This fee becomes payable at the end of the second month after date of application.

RECURRING MONTHLY FEES:

Your debt counsellor oversees the distribution of your monthly instalment to the PDA. Your debt counsellor attends to correspondence and consumer request. There are costs involved and therefore the Debt Counsellor Aftercare Fee is payable on a monthly basis. This fee is equal to 5% of your new restructured instalment and is capped at R450.00.

Some important questions answered

How important is obtaining of a Court/Consent Order?

It is very important. Debt Review is a legal process and the debt counselor is the servant of the court on behalf of the consumer even if the Credit Provider’s consent to the proposal is in writing.  Every respondent of this process knows this process culminates with a granted court/consent order.

What is a single or joint application?

When the applicants are married in community of property the applicants jointly applies. When applicants are married with an ante nuptial contract (with or without accrual) and the bond is jointly registered the application is also a joint application.  Applications by divorced and unmarried individuals are deemed single applications. Traditional marriages are deemed only as marriages in community of property if the marriages are registered within three months after the traditional ceremonies. 

If my bond account is included in Debt Review will I be under debt review until the bond is paid off?

No. A bond account is a long term credit agreement. The debt review terminates when all other accounts are paid up. The Home Loan Account reverts back to the old terms and conditions.  This means the Credit Provider will work out the new instalment based on the outstanding balance, interest rate, and remaining term.

What documents need to be attached with my application?

The following documents form part of your application: Copies of your ID document(s), newest payslips, municipal account (proof of residence), marriage certificate, latest credit report, and 3 months’ bank statements.

Once a restructuring order is granted, when am I protected and when not?

Section 88(3) of the National Credit Act makes it clear that if you default with the payments ordered by Court, you Credit Provider may terminate the debt review and proceed with legal action against you.

How do I know that I qualify to apply for debt review?

  • TO QUALIFY YOU NEED TO RECEIVE A REGULAR MONTHLY INCOME SUBSTANTIATED BY A SALARY ADVICE AND 3 MONTHS BANK STATEMENT.
  • YOU MAY QUALIFY IF YOU HAVE DIFFICULTY TO PAY ALL YOUR ACCOUNTS.
  • YOU NEED TO BE SURE THAT YOU ARE INDEED OVER-INDEBTED. THIS CALCULATION IS: NET INCOME MINUS REASONABLE LIVING EXPENSES MINUS THE TOTAL OF ALL YOUR MONTHLY DEBT PAYMENTS. IF THE ANSWER IS NEGATIVE YOU ARE OVER-INDEBTED.  
  • YOU NEED TO BE A COMMITTED DEBT PAYER. YOUR CREDIT RECORD WILL REVEAL YOUR COMMITMENT TO PAY YOUR DEBT.

It is important that your application form must be filled in complete and accurate. It is true that time is our enemy but we all know that for important things we must make time. You will realize that when you will download the application form that you will have to collect some information and documents like your latest salary advices, copies of your ID documents, your latest account statements. You will also have to spend time to revisit your budget in order to complete your household’s living expenses as accurate as possible. You might also find it handy to visit Pick ‘n Pay or Checkers online to establish what you are paying for your hygiene, cleaning and monthly groceries.

You will definitely have to spend some time filling in your application form as accurate as possible. Download the form, print it , and fill it in. Signature(s) are important because we may not process application forms which are not signed. The form contains permissions that is null and void, and even unlawful without application signatures. You will also find a link below to download a budget form which you can use as a work page before you fill in PART 3 of the application form which deals with your monthly household expenses.

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