THE COMPLETE DEBT COUNSELLING PROCESS

THE DEBT COUNSELLING PROCESS
If a Debt Counsellor is of the view that a consumer is over-indebted he can propose a restructuring to all credit providers of the consumer. However, should any of the credit providers refuse to consent to such a restructuring, the debt counsellor will have to make one or more of the following recommendations to the Magistrates’ Court, concerning the obligations of the consumer:

That the period of the consumer agreement should be extended and the monthly payments be reduced;

That certain payments be postponed;

The recalculation of the consumer’s obligations in cases of the charging of unlawful fees;

Suspension of obligations under any reckless agreement

There are four points of entry for a consumer to enter the debt review process, namely:

A referral by court
A referral by the National Credit Regulator
A referral by a credit provider or
A voluntary application by a consumer.

What is a voluntary debt re-arrangement?

The Act allows the assistance of consumers who are not over-indebted, but who are “...nevertheless experiencing or likely to experience difficulty satisfying all...[their] obligations under credit agreements in a timely manner, the debt counsellor may recommend that the consumer and the respective credit providers voluntarily consider and agree on a plan of debt re-arrangement.” (section 86(7)(b).

The Act does not prescribe an application procedure for this remedy, but the Declaretor ruled that negotiations . The plan of voluntary debt re-arrangement is not defined. However, it does generally refer to a contractual arrangement that is concluded between the consumer and the creditors on how payments will be made. In this situation the debt counsellor cannot impose any condition, but is permitted to facilitate the conclusion of the agreement in writing and signed by the consumer, all creditors and the debt counsellor [regulation 25(9]).

The role of the debt counsellor in the plan is decided at the discretion of the creditors and the consumer. If the parties agree, they can extend the debt counssellor’s functions to include:

Collection of money for the debtor;
Payment of living expenses of the debtor;
Prioritising the payment of debts (which may be based on the duration of the debt);
Monitoring the payment

If the parties agree, the debt counsellor may redraft the agreement as a consent order (similar to Tribunal or Court order).

What is an involuntary debt re-arrangement?

A debt re-arrangement can become involuntary. This happens when the parties are unable to agree on a voluntary arrangement. In this situation the debt counsellor makes a recommendation to the Magistrates’ Court in terms of section 86(8)(b). the Magistrates’ Court will have discretion in this matter.

THE PROCESS

The consumer will enter the process by one of the four entry points, mentioned above.
- A magistrate can refer a consumer to a debt counsellor if at any proceedings it are alleged that a person is over-indebted.

- The National Credit Regulator can refer a consumer when the Regulator is of the view that a complaint appears to relate to over-indebtedness.

- Section 129 of the Act prescribes if a consumer is in default of payment, the credit provider can bring the default to the attention of the consumer and advise him that he can refer the matter to a debt counsellor.

A credit provider is allowed to proceed with legal action if:
- the consumer fails to respond to the notice of the creditor, or
- the consumer refuses the advice of the creditor and does not refer the matter to a debt counsellor.

All credit agreements are subject to the debt review process.
- The only exception is if the credit provider has proceeded with
legal action against the consumer in terms of section 129 of the Act.

The Declaretor ruled that when the Section 129 was issued, this is the start of the legal process and the creditors are not obliged to include this into the debt review process.

- The process will also apply to pre-existing credit transactions
(except if they refer to reckless lending).

The applicant is required to pay an application fee. This is payable when the F16 Application is handed to the debt counsellor.

It is also required that the debt counsellor obtains a credit report. The applicant can obtain this himself and hand it with the Application to the debt counsellor..

The debt counsellor will provide the applicant with a F16 Application form, which must be completed. ALL information is necessary. The applicant must provide the debt counsellor with names and information of all his creditors, as well as references or account numbers. Specify monthly expenses. It is important to provide all information, to enable the debt counsellor to work out a workable repayment plan. The debt counsellor will not search for this information and the debt counselling process will not be able to start without this information. If the debt counsellor have not obtained the information within 10 (ten) work days, the review will be terminated.

The applicant must provide the debt counsellor with copies of all accounts, any letters of attorneys and judgments, as well as copies of any agreements after 1 June 2007, for the debt counsellor to also assure there are no reckless lending involved. Proof of all income received, bank statements and a copy of the applicant’s identity document are required.

Make sure all expenses are declared. The debt counsellor would not be able to review and re-review, because the applicant forgot certain monthly expenses or creditors, and shortly runs short again to repay debt.

As soon as the debt counsellor has found the applicant over-indebted and worked out a repayment plan, the debt counsellor will consult with the debtor and then present the repayment plan to the creditors (informal route) or to the Magistrates’ Court (formal route)

When married in community of property, both parties must apply together for debt counselling. When married out of community of property, the debt counsellor would need two separate applications. Expenses could be split between the two parties, unless discussed with the debt counsellor, to apply on one application.

Co-inhabitants, who share all income and expenses, can also apply on a separate application.

Once the application has been received by the debt counsellor, the requirement is to give notice concerning the application to all registered credit bureaus.

Form 17.1 must be sent to all credit providers listed on the application, by the debt counsellor, within 5 days, informing them that the consumer has applied for debt review.

A credit provider will have 5 days from receiving a request from a debt counsellor to verify any information. Should the credit provider fail to respond within the given time, the debt counsellor may accept the information provided by the consumer as being correct. The credit provider may however, at a later stage, contest the information held by the debt counsellor – making the restructuring difficult.

The debt counsellor is required to make a ruling concerning the over-indebtedness of a consumer within 30 days of receiving the application for debt review.

The debt counsellor has 5 days after making a decision to inform all creditors and credit bureaus, whether;

- The consumer’s application was rejected in terms of Section 86(7)(b) of the Act, when the consumer was not found over-indebted.

- The consumer’s application for debt review was successful and the debt obligations are in the process of being restructured, or

- That the consumer’s debt obligations have been restructured by a Court or Tribunal and that an order has been issued.

The debt counsellor must report all information concerning the debtor, creditor, employer and other information required on the NCR’s administrative system (DEBTHELP).

If the consumer was not found over-indebted, the debt counsellor will give him a letter, stating this.

If the consumer was fount to be over-indebted, the debt counsellor will have 60 days from receipt of the application to provide a restructuring. The restructuring proposal may be by way of:

- An agreement between the credit providers and the consumer, or

- alternatively by a court order.

Should a debt counsellor fail to do the debt restructuring within the 60 days allowed, a credit provider may, on notice to the debt counsellor, proceed with legal action against the consumer. This is done in an attempt to avoid consumers from “hiding” in the debt review process.

Even if the consumer is able to meet his financial commitments, but the debt counsellor is of the opinion that this may soon not be the case, the consumer may qualify for debt restructuring.

After considering the over-indebtedness application, the debt counsellor can make any of the following recommendations to the Magistrate’s Court, or whilst attempting to obtain consensus among the credit providers on how to restructure the consumer’s debt:

- Extending the period of the agreement and reducing the amount of each payment due accordingly;

- Postponing, during a specified period, the dates on which payments are due under agreement;

- Extending the period of the agreement and postponing, during a specified period, the dates on which payments are due under the agreement; or

- Recalculating the consumer’s obligations, because of contraventions of amounts permitted in the Act.

The debt counsellor may also make recommendations to the Magistrates’ Court, regarding possible reckless credit agreements. It will be left to the court to:

- declare the agreement reckless and

- propose a manner in which to deal with the reckless agreement

Any debt restructuring process ordered by the court will exclude all reckless credit agreements. However, where the credit providers and the consumer can come to a voluntary debt restructuring agreement, reckless credit will likely be included in the restructuring.

RESTRUCTURING OF DEBT

The informal “non-statutory”-route

An agreement is reached by negotiation. The Declaretor now describes this.

In the event where the parties cannot agree, the debt counsellor will then apply the formal/statutory route.

The NCR has recommended that:
“The preference is to resolve the majority of DC-assisted cases via the “informal or non-statutory”-route, without resorting to the NCA. Hence the DC must treat each case initially as an “Informal Review Case” and register it as such on the official DCO database – until all the informal route options are exhausted.”

The statutory “formal” route

This is statutory debt counselling, as prescribed by the Act, which makes provision for:

Reporting to the credit bureaus.

All cases are reported within 5 days after application via NCRDebthelp to all credit bureaus.

PAYMENTS MADE BY CONSUMERS UNDER DEBT REVIEW

It is extremely important for the credibility of the debt restructuring process that consumers make payments in accordance with the agreement reached.

The NCR has registered payment distribution agencies in place, to collect monthly payments, via stop orders or debit order from banking account. The payment would be distributed to the creditors. The cost of deducting the payments must also be considered. If the consumer fails to pay, the Act states that the consumer must be taken out of the debt review process and the debt counsellor must advise the credit bureaus and credit providers accordingly. The creditors will have the right to resume normal legal proceedings against the consumer and the consumer will not be able to re-negotiate an agreement, once before negotiated.

Letter of rejection

If a debt counsellor finds that the consumer is in a position to service his debt commitments at the end of any given month, the application for debt review must be rejected. Even if some of the consumer’s agreements seem to be reckless, but the consumer is not over-indebted, the debt counsellor must reject the application.

Although not stipulated in the Act, it is also recommended that the debt counsellor is aware of consumers who attempt to use the review process to avoid credit providers from taking legal action. An application for debt review will render the consumer “protection” from any legal action which credit providers could institute until such time as the debt counsellor has made a finding.

The debt counsellor must issue a letter of rejection to the consumer, with:

A copy of the assessment form and
statement advising the consumer of his right to approach the court in terms of section 86(9), within 20 business days for an order to be declared over-indebted, have agreements declared reckless and/or restructuring of debt obligations.
A statement, advising the consumer that the application for debt review will be removed from all registered credit bureaus within 5 business days, which will result in credit providers being entitled to take legal action against the consumer.
A consumer whose application was rejected has the right to apply to a Magistrates’ Court to overrule the debt counsellor and declare the consumer over-indebted, have any of his agreements declared reckless and/or restructure the consumer’s debt.

The debt counsellor should advise all credit providers and registered credit bureaus within 5 days of rejecting the consumer’s application for debt review (Form 18).

ISSUING OF A CLEARANCE CERTIFICATE (REHABILITATION)

The debt counsellor has an important function insofar as clearing the records, concerning any debt re-arrangement, which is loosely referred to as rehabilitation If a consumer wants to be rehabilitated, he must apply to a debt counsellor at any time for a Clearance Certificate.

The debt counsellor must investigate the circumstances of the debt re-arrangement and, if satisfied that the obligations of the credit agreements under the debt re-arrangement or the court order have been complied with, he issues a Clearance Certificate (Form 19). A credit bureau that receives the certificate is required to expunge the following records [section 71(5)]:

The fact that the consumer was subject to the relevant debt re-arrangement order or agreement;

Information relating to any default by the consumer that may have,