Debt Review – Process and Timeline
You may wonder what is involved in the debt review process. How long does it take and what will happen if you decide to use the process to help get you out of debt? We take a brief look at the steps along the way and what you can expect.
Debt Review is a legal process, as set out in the National Credit Act. Role-players, fees, actions, and timescales are strictly regulated by the National Credit Regulator. Regulator (NCR). When dealing with debt you may have done some research online (like in Debtfree magazine) or maybe a friend told you about debt review. You may also have received a scary letter from a creditor threatening legal action and suggesting that you talk to a Debt Counsellor for assistance in sorting out your debt. Let’s take a look at the steps along the way and consider how long the various time periods are during each step.
Day 0 – Apply for Debt Review
At the first interview, your Debt Counsellor will want to hear about your situation. How you got into debt and how you have been trying to cope so far. They will also ask that that you bring supporting documentation – typically, proof of identity, employment, income, address, marital status and so on. In addition, your Debt Counsellor may request permission to draw your credit report from one or more of the Credit Bureaus. If a Debt Counsellor does not have all the necessary documentation they will not be able to proceed and, later on, your application for Debt Review may be unnecessarily delayed, rejected or terminated. Going to talk to a debt Counsellor does not start the debt review process. After all you may just be curious or shopping around for a Debt Counsellor who you feel meets your needs. The clock only starts running when you sign the completed application (Form 16). This might be the day of the interview or even months later. When visiting the Debt Counsellors office (it is good to know where they operate from) check for their NCR certificate on the wall. Learning to trust the Debt Counsellor is a big part of the process so get to know a lot about them.
Day 1-5 – Notify Creditors and Credit Bureaus
Once your Debt Counsellor has received the completed application (signed) and all the supporting documentation, they have 5 days in which to notify your Creditors and the various Credit Bureaus that you have applied for Debt Review. From this moment until you complete your Debt Review, you will not be eligible for further credit (truth is, you probably could not afford the credit anyway). However, you are also protected from any further legal action by your Creditors. Remember, your Debt Counsellor is authorized to act on your behalf (by your Power of Attorney) with creditors – always refer Creditors and Collectors to your Debt Counsellor if they contact you directly! Remember if you do not give someone from a call center permission to record your voice then they have to end the call.
A fee of R50-00 (+VAT) is payable to the Debt Counsellor for processing the application. Not all DCs charge this amount. The NCR say you can pay this directly to the Debt Counsellor and not via a PDA like the rest of the payments.
Day 6-10 – Collect supporting information
Your Creditors have 5 days in which to provide confirmation of credit agreements, balance owing, interest rate, terms and conditions, etc. During this time the Debt Counsellor continues to collect as much information as possible. All this information will eventually be presented to the magistrate to explain the restructure of your debt repayments.
Day 11-20 – Construct interim repayment plan
Your Debt Counsellor completes an over-indebtedness assessment (figures out if you need debt review or can rather just change how you are spending your money each month). Based on this they will work to propose a repayment plan for your Creditors, and a monthly living budget for you. Your Debt Counsellor will advise you on cancelling your existing debit orders and setting up a new deduction to what is called a Payment Distribution Agency in accordance with the new repayment plan they have created. At the same time they then take this plan and send it to your Creditors. It is hoped that your creditors will be quick in checking the proposal and respond quickly agreeing. They may not agree to the plan (normally because they want more money) and may ask the Debt Counsellor to amend the plan a bit.
A fee equal to the first restructured debt repayment, which can be equal to a maximum of R6000 (+VAT) will be paid via the PDA to your Debt Counsellor. If the plan says you will pay less toward your debt then you will pay whatever that figure is to your Debt Counsellor once off. If the plan says you will pay more then you only pay the R6000 to the Debt Counsellor.
Day 21-39 – Negotiate Long Term Repayment Plan
The Debt Review process is built upon a foundation of good faith. During ongoing negotiations between your Debt Counsellor and Creditors during this time (as they try to agree on the best plan) it is essential that you continue to make payments in accordance with the repayment plan, adjusting payments to the PDA as necessary. Creditors may accept or decline at any point. Remember to always refer Creditors and Collectors to your Debt Counsellor if they contact you directly! Beware of any offers outside of the process as these will negatively effect the protection offered via the process.
Day 40-60 – Collate legal documentation and initiate court proceedings
Having talked repeatedly to all your creditors and finding out who is happy and who is not the Debt Counsellor now prepares a final repayment plan for the court and probably appoints a legal representative. You will be required to sign an Affidavit summarizing all the facts. This, together with your original application new debt repayment plan and all the supporting documentation, is prepared for court and a court date is booked to hear your case. The actual court date may be some weeks or months into the future. In the meantime, you must continue to observe all the terms of the final repayment plan until the court order is granted. Some people wait only a few days while others face a longer wait when creditors or courts delay matters.
A fee out of your second repayment (or maybe even more payments if you are paying very little each month) will be retained via the PDA towards your legal fees or paid by them to your legal representative. If your all Creditors accept the proposed repayment plan probably if you are able to pay a high percentage of what you should normally pay each month) the court application may under certain circumstances sent to the National Consumer Tribunal, capping the legal fees at R750 (+VAT). This can also take a while.
ASAP – Court Order Granted
The appointed legal representative or Debt Counsellor appears in court on your behalf to ask the magistrate to approve the final repayment plan. Even if some creditors are not happy the Magistrate can make a ruling. You can help to ensure that the court order is granted at the first court date by making sure that your Debt Counsellor has all the necessary supporting documentation. You will have to go to court during the week to get your court order. This is a good thing but somewhat boring. The court order is binding on all parties and, once granted, your monthly payments are legally mandated even if you get a call from a stranger saying this is not so (beware). Now if you miss a payment you may be guilty of contempt of court, and your Creditors may terminate their participation in your Debt Review and start new legal action against you. You should never miss a payment and should keep proof of your payments in case there is ever a dispute. Once notified of the court order your creditors have 10 days to get this loaded onto their systems. Many creditors are unfortunately very lax in doing this. You may need to check on them.
Annual – Review Repayment Plan
Many debt restructuring plans are over 5 years or so based on your current situation. If things improve this can be reduced greatly. Each and every month you continue paying via the PDA, and each month you receive detailed statements from the PDA as to how your money has been distributed amongst your Creditors. These may differ from those supplied by the creditors depending on how good your creditors are at getting their computers to show the debt review or not. Some are better than others. If they don’t or if they call with demands for payments you can complain to various parties to get them to stick to the court order. You must make the correct payment each month and on time or you can derail the entire process and the progress made. Even one missed payment will cause a world of problems. At least once a year your Debt Counsellor will normally contact you to review and possibly update your repayment plan with any changes in income or expenditure that might have occurred. It is hoped that while under debt review your situation (being more stable) will improve. The goal is to pay off your debts as quickly as possible so that you can achieve full financial recovery.
A fee equal to 5% of your monthly repayment, with a maximum of R400 (+VAT) will be via your PDA to your Debt Counsellor for ongoing aftercare. After 24 months, this fee reduces to 3%. A fee currently equal to 3% of your monthly repayment, once again with a maximum of R500 (+VAT) is retained by the PDA for cost of administration of the distribution. Think of these as your debit order costs. Normally the amount you save each month on reduced interest and account fees is much more than these costs.
Ad Hoc – Change in Circumstance
Make sure you stay in touch with your Debt Counsellor all the way through Debt Review. Keep them apprised of everything that is happening in your life – marriage, divorce, birth of another child, change of job, emergency medical expenses or repairs to home or vehicle, bonus payments, etc. Any deviation from the final repayment plan, which may or may not be ratified by court order by now, will invalidate the plan if you just go ahead and change your payment or pay late. Fortunately many creditors are reasonable and given enough of a warning or with a change to your court order (where necessary) a changed payment might be agreed upon between them and your Debt Counsellor. This is not a quick thing and you should try to avoid it as much as you can. Some companies can help you to ensure your monthly debt review repayments against things like retrenchments. Insurance can also help with things like accidents or complications at home. Talk to a FAIS accredited advisor about such matters early in the process to get the best advice.
Finally – Clearance Certificate Issued: Getting Debt Free!
Time flies and as you settle into the habit of budgeting and frugal living then sooner than you think your debts will begin to be paid off one by one. As one debt disappears things begin to snowball in your favour until all your debts (or at least the short term ones) are paid up. Your Debt Counsellor makes sure that end balances have been cleared by the Creditors (and there can be fights about this so be prepared to have to pay a little longer on some accounts) and issues a clearance certificate notifying all the Credit Bureau (there are 13 in SA) to clear your credit record. At this point the debt review status on your record is removed with the help of the NCR. If you wanted to and could afford it you could then go to creditors to try access new credit. Imagine how good it will feel to have a clearance certificate.
*If at any time you feel your Debt Counsellor (or one of your Creditors) is not living up to these regulations, you may file a complaint with the National Credit Regulator.
A Special Thanks to our friends at Cape Debt Clinic for their help with the process info.
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