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)

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)

PAY YOUR LEVIES, OR ELSE…

Dear Mr Lawyer

I am the owner of a sectional title, and I have paid my levies every month as required, until the water started seeping through the ceiling of my enclosed balcony into my section when it rains. The leak was clearly emanating from a defect in the common property. I asked the body corporate on numerous occasions to repair the defect, yet after four months of writing letters and sending emails the body corporate still has not done anything to honour this simple request. As a frustrated owner I resorted to desperate measures and employed a contractor to repair the property defect. I settled the bill myself.

May I withhold my levies for a period to set off the money that is owed to me by the body corporate?

Dear Mr Owner

Although this action may sound reasonable, the right to stop paying or to set off a debt against levies is not legally justified and owners are not, under any circumstances, entitled to simply withhold levies.

There is no provision in the Sectional Titles Act 95 of 1986 or the rules that gives an owner the right to withhold levy payments. Even if an owner incurs expense in performing an emergency repair to the common property, and believes that the body corporate owes him money, the owner may only set off the debt against the levies once it becomes liquid.

An amount can only be liquid once it has been agreed upon. An owner cannot set off the amount he believes he is entitled to deduct. The trustees, judge or arbitrator must have confirmed the amount.

If Mr Owner does withhold his levies without the amount being liquid, he is subject to the following sanctions in terms of the prescribed rules:

  • Firstly, the trustees are entitled to charge interest on arrear amounts at a rate determined by them, and so the defaulting owner may receive a larger account, due to the interest on his arrears, than if he had paid his levies.
  • What is more, The Sectional Titles Act imposes a positive obligation on trustees to recover levies from defaulting owners. Not only does the Act empower them to charge interest, the scheme attorneys will most likely issue summons against the defaulter for all costs that the Body Corporate may incur in recovering any arrears.
  • Secondly, the prescribed management rules provide that, except in the case of special and unanimous resolutions, an owner is not entitled to vote if any contributions payable by him in respect of his section have not been duly paid. Therefore, an owner who withholds his levies is unable to vote for ordinary resolutions in respect of the section that he is withholding levies on.

Mr Lawyer, how does an owner deal with a situation where he believes the body corporate is liable for payment?

A dispute must be declared with the Body Corporate by written notice of the dispute or query to the trustees. The trustees or Body Corporate then have 14 days from receipt to resolve the dispute. During this period, the parties should meet to try and resolve the dispute. If there is no resolution after the 14-day period, either party may demand that the dispute be referred to arbitration. The arbitrator must make his/her recommendations in settlement of the dispute within 7 days from the date of commencement of the dispute. The decision of the arbitrator shall be final and binding and may be made an order of the High Court.

It is clear that prescribed processes are in place according to which disputes and related issues can be settled. Not only will this ensure that you act within the legal guidelines, but it will also eliminate unnecessary frustration.

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)