DO MY DEBTS LAST FOREVER?

Prescription was introduced as means of protecting South African consumers from dishonest credit providers, who are responsible for recklessly lending credit and have contributed to the detrimental debt crisis many South Africans face today.

What does prescription mean?

  • The Prescription Act 68 of 1969 (PA) says that a debt (payment of money) is extinguished/expired after the lapse (passing) of a specific time period.
  • South Africa has different laws which specify time periods, for example, the PA says contractual and delictual debts extinguish after 3 years from when prescription starts.
  • Prescription may be delayed or interrupted.

It is important to bear in mind that not all debt prescribes after a period of three years. Debt related to a cheque, for example, only prescribes after 6 years. The purpose of prescription in South Africa is to compel creditors and collections agents to collect money owed to them within a specified period and not delay collection so that it accumulates massive amounts of interest and costs.

What are the consequences of an extinguished debt?

  • The debtor is not liable to the creditor for a debt after the time period has lapsed.
  • The creditor may not institute legal action against the debtor for a debt.

When does prescription start?

As soon as the debt is due (a debt is due once the creditor can identify the debtor and the facts from which the debt arises).

  • If the debtor prevents the creditor from gaining knowledge of the debt (excluding debts arising from agreements) prescription runs from when the creditor has knowledge of the existence of the debt.

An important point to remember is that it’s perfectly legal for a debt collector or attorney to demand payment for a prescribed debt. It is up to a debtor to raise prescription as a defence.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

I REPAY MY DEBTS, WHAT CAN I DO?

If you are over-indebted, in other words, unable to repay all you credit agreements. Your biggest concern might be not getting dragged off to court or having all your possessions taken away. So what can you do to get out of your mess?

Debt review

Before you receive a summons for your outstanding debt you can opt for debt review. It’s important to take this option if you believe you won’t be able to pay your debts because once you receive a summons it’s too late. Debt review was introduced in 2007 with the National Credit Act (NCA).

During the first 60 business days from the date of your application to be placed in debt counselling, legal action may not be taken against you in respect of debts that are “under review”. Therefore, if you’ve opted for debt review, you don’t have to stress about someone knocking on your door, yet.

What if you don’t pay your debts?

If you decide not to go for debt review and fail to pay your outstanding debt, the creditors could take the following actions against you:

  1. Issue a summons and obtain judgement against you for the outstanding debt, interest and their legal costs;
  2. Send the sheriff to attach your property, such as your car;
  3. Instruct the sheriff to sell the attached property at an auction;
  4. Obtain a court order that your employer deduct an amount an amount from your salary and pay it over to the creditor (emolument attachment order).

Debt review process

If you decide to go for debt review, a registered debt counsellor has to first assess your financial obligations. This is basically what you have to pay every month. Some of your financial obligations may be due to reckless credit. This is when a creditor grants you credit without checking if you can afford it first. However, if you lied in your credit application, your financial obligations won’t be considered reckless credit.

If you are over-indebted the debt counsellor will draw up a repayment plan to rearrange your debt obligations. If your creditors reject the repayment plan, your debt counsellor can refer the matter to a magistrate’s court with a recommendation.

The court could make the following orders:

  1. You are not over-indebted and must continue making regular payments. If you don’t the creditor may take legal action to force you to pay.
  2. You are over-indebted and reckless credit was granted to you. The court may relieve you of some or even all of the payments under a reckless credit agreement depending on what is fair and just. The court may also postpone the date of payment under reckless credit agreements.
  3. You are over-indebted and must rearrange your payment obligation.

Hopefully, the creditors accept the repayment plan, or a magistrate’s court agrees to the repayment plan. The Payment Distribution Agent (PDA) will then channel your revised payments to your creditors. The payments are made directly to the PDA.

Once you’ve successfully paid all your debts, the debt counsellor will issue you with a clearance certificate. They will also notify the credit bureaus that you are no longer in debt counselling.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

HOW TO MANAGE YOUR DEBT

Alecia had too much debt and her expenses outweighed her income. She decided to open a new bank account into which her salary could be paid, which would ensure that she could manage her salary before her monthly debit orders went off.

Alecia thought it would be a good idea to pay her small debts off first and then begin with the larger debts. Unfortunately, this resulted in her not making any payments at all on her home loan and credit card. The bank threatened to blacklist her and sent her a summons.

What will the bank do?

The bank then made an application in court for an order that made it compulsory for her to pay the amount which the bank set out; this order is called an Emoluments Attachment Order (EAO) or garnishee order. An EAO is granted in terms of s. 65J of the Magistrates’ Courts Act 32 of 1944 and orders an employer (referred to as a garnishee) to make deductions from a debtor’s salary or wages and pay these over to the creditor or its attorneys. This amount was much greater than Alecia could afford and left her with no income for the rest of her monthly debt payments. She was thus put in a worse financial position than before.

Debt counselling

Debt counselling is a process of assisting consumers that are experiencing debt-related problems and are having difficulty making their current monthly payments. It provides budget advice, restructuring of payments, negotiating on your behalf with credit providers, monitoring payments and providing aftercare services. If Alecia had known about debt counselling sooner she would not be stuck in the position she is now facing. It is important to educate people about debt counselling, especially in a country where debt is granted so easily and yet so hard to pay back.

It is the duty of the Debt Counsellor [who is registered with the National Credit Regulator (NCR)] to assess whether the consumer is over-indebted by weighing the income and expenses and then taking into account statutory and non-statutory deductions as well as existing monthly debt payments. If the calculation results in a negative balance, the consumer is declared over-indebted. The debt counsellor provides a proposal that lowers the debt payments and increases the cascades (the number of months allowed for repayment of the debt, inclusive of interest), in order for the consumer to be able to manage his/her debt while paying it off at the same time. An order is then granted in court and sent to the credit providers, and the consumer can no longer incur any new debt. Once the debt is paid off, the consumer is given a clearance certificate and he/she has all that extra income to buy goods in cash.

What if the bank has already taken action?

Unfortunately, it was too late for Alecia as legal action was already taken against her. The same applies if a termination letter is sent in terms of s.129 of the National Credit Act. It is important for people to know that there is a way to manage their debt, but they need to acknowledge that they are in financial trouble before they are placed in a situation like Alecia. It may be too late for Alecia, but hopefully it won’t be too late for others.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)