On 1 June 2007 the National Credit Act (NCA) came into effect and shortly after someone that is over in debt could apply for Debt Counselling.
Debt Counselling was introduced to provide a process for helping a customer with over indebtedness. It also provides a consistent system of debt restructuring, enforcement and judgement, which places priority on the eventual satisfaction of all responsible for the consumer obligations under the credit agreements.
The process of Debt Counselling was developed to offer a way out for consumers who cannot meet their monthly obligations under current credit agreements; after all basic living expenses have been paid. Basic living expenses get priority before making provision for credit repayments. Debt counselling provides you with more breathing space without getting into trouble with your creditors for short payments.
Debt Counselling can be summarised as a procedure where a person, who can no longer afford to meet all his monthly debt obligations, can apply with a debt counsellor to negotiate on his behalf with his creditors for reduced monthly repayments.
How does the Debt Counsellor Negotiate lower Repayments on Debt?
There are 2 variables that the debt counsellor uses to negotiate lower payments. The debt counsellor will negotiate lower payments by renegotiating the interest and the period of repayment.
The debt counsellor cannot negotiate a discount or a reduction in the capital outstanding on the debt. The debt counsellor will use the total current outstanding debt. This will be the total outstanding debt. The arrears are included in the current debt. The customer will not have to pay the arrears separately. It is all lumped together.
Debt Counselling Process
When a customer applies for debt counselling, the debt counsellor will evaluate the customer’s financial position in order to determine if the customer is over-indebted, on the grounds of the information provided.
The debt counsellor will inform the customer’s creditors that he has indeed applied for debt counselling. The debt counsellor will inform each creditor with a legal notice called a 17.1 Notice. Creditors are then not allowed to take any legal action. The creditor must negotiate with the debt counsellor over the next 60 working days to determine a new repayment plan for the customer.
Over-indebted means that the person does not have enough money left to meet his monthly obligations under all credit agreements, after all basic living expenses have been paid.
Should the debt counsellor determine that the applicant indeed appears to be over-indebted, he will commence with a procedure to inform all the customer’s relevant creditors of his conclusion. This is done with another legal notice called a 17.2 Notice. The 17.2 Notice will give confirmation of over indebtedness and the new repayment proposal will be attached to creditor.
The debt counsellor will then, on behalf of the applicant, enter into a process of negotiation with these creditors in order to negotiate reduced (more affordable) monthly repayments on behalf of the applicant.
All debt counselling applications end in court. This is to get a consent order for the new agreement. The consent order insures that the creditors stay to the new repayment arrangement and may not take legal action. It also gives the creditor peace of mind that customer will keep to the new arrangement to pay each month and not skip or short pay on monthly repayments at any time.
The debt counsellor must get a court date within the first 60 working days of the debt counselling application. The debt counselling application will not be finalised until the court case. There is a long wait for court appearances so the court case will not be in the 60 working days of the application.
The intention of the NCA was not that all applications end in court, but because of a new directive in 2009 this has changed. This has caused that applications take much longer than the initial 60 working days intended by NCA.
All customers are protected after the 60 working days as long as monthly payments are made to the Payment Distribution Agency. The creditor may not cancel the debt counselling after the 60 working days as long as the customer keeps to new repayment plan.
Payment Distribution Agency (PDA)
The customer will stop paying creditors after applying for debt counselling and start paying the PDA each month. The amount will be the amount the customer can afford to pay each month. This amount was worked out on the Form 16 debt counselling application form. The PDA will distribute payments to each creditor as per debt counsellor initial proposal.
The debt counsellor is allowed to charge certain fees as approved by the National Credit Regulator (NCR). These fees may be deducted from the monthly payments made by the applicant.
Our contact details for application and any questions:
Tel: 076 514 3756