Many South Africans are drowning in debt and doing their best to stay afloat. If this resonates with you and creditors (or debt collectors) are hounding you, or if your monthly expenses exceed your income and you are using credit to pay arrears, you are not alone. Recent statistics from the National Credit Regulator show that more than 10 million people are in arrears on their debt.
But, it isn’t all doom and gloom for the country labelled the most indebted nation in the world! The good news is that South Africans seem to be managing debt better, signifying a mind-shift on borrowing money. Fewer South Africans are taking out loans from banks, micro-lending providers and family, despite the increasing financial pressures.

Find the right debt management solution for you:

If you feel overwhelmed and struggling to take control of your financial situation, the law is on your side and can help you to take back control and get rid of the emotional strain of owing money. There are a variety of debt management solutions (each with its pros and cons) you should consider:

1. Debt Administration

Debt Administration is a legal process that will reduce your instalments and extend the repayment terms of your debt, as long as your total liability does not exceed R50 000. You will need the assistance of a Debt Administrator, who will deduct your living expenses from your income, and divide the balance equally between your creditors. Only a court can make an order to place you under Administration. If the court grants your application, the Debt Administrator will take over the management of your finances, and your creditors won’t be able to take legal action against you.

Debt Administration isn’t always the best option and can be quite expensive. Interest rates are reduced to only 15,5%, and the repayment terms are usually extended open-endedly. Not to mention, interest adds up because creditors are only paid every three months. Keep in mind that there are 12,5% administration fees, VAT and distribution costs payable. There is also no way of hiding it from your employer, as payments are deducted straight from your salary.

If you are placed under Debt Administration, it is essential to keep a close eye on statements and to ask questions if something doesn’t make sense. Debt Administrators aren’t legally required to register with a regulatory body, and in the past, some have been caught overcharging or not paying creditors. The Administrator must draw up a Distribution Account every three months, and show what has happened with your money. The Account must show how much was received, how much was deducted as fees and costs and the amount paid over to each of your creditors. By checking statements, you can make sure you aren’t being overcharged or end up in deeper debt.

If you decide that Debt Administration is not for you, you can cancel it. But, you will have to convince a Magistrate that you have good reasons for your decision and that you will continue to pay your creditors.

2. Debt Review

Debt Review is also a legal process that will extend your debt repayment and reduce current interest rates, provided you cannot repay all your creditors on your current income. You will need the assistance of a Debt Counselor (who is registered with the industry watchdog known as the National Credit Regulator (NCR) to assess your financial situation, crunch the numbers and guide you through the legal ins and outs of Debt Counselling and Debt Review.

If you qualify, the Debt Counselor will restructure your debt and renegotiate payment with your creditors. Once the proposed payment plan is accepted, a legal consent order will be obtained. The Credit Bureau will be informed, and your creditors won’t be able to take legal action against you unless you don’t keep your end of the deal. A Payment Distribution Agency will receive a lump sum from you every month, and pay your creditors as agreed. Unfortunately, you will have to approach the court for help if your creditors do not accept the Debt Counselor’s plan.

Keep in mind that, because your monthly debt repayment amount is reduced, it will take longer to settle the debt and you will pay a bit more interest. While it might seem like a disadvantage, it is a blessing in disguise – you won’t be able to take on further debt while you are under Debt Review. You will also be liable to pay various fees, such as restructuring fees, application fees, aftercare fees, transactional payment distribution fees, etc.

In the past, the only way to get out of Debt Review was to settle all outstanding debt in full. Now, you can choose to cancel your Debt Review voluntarily. If you decide that Debt Review is no longer for you, you will have to pay the original instalments and interest rates again. There may also be additional penalty fees. If you cannot afford to pay your debt, you run the risk of legal action. Keep in mind that if your Debt Review was made an order of the court, you would have to apply to have it cancelled.

3. Sequestration

Unfortunately, the best isn’t always saved for last. This debt management solution will see someone being appointed to manage your finances and, unlike with Debt Administration or Debt Review, if you decide sequestration is the right debt solution for you, you will be forced to sell your possessions to settle (or decrease) your debt. This includes your house, your car, furniture and other assets of value. Unfortunately, you cannot be sequestrated if your creditors feel that it won’t be in their best interest, so you will have to offer at least 20c-25c in the rand of what you owe. You will need the assistance of lawyers and advocates, which means that you will be forking out hefty legal fees. This process is long and often takes years to be finalised. What’s more, you won’t be able to take on debt for at least five years.

On the upside, after being sequestrated, your entire salary is yours, and you won’t have to pay any portion of it to your creditors. Your employer will also not know about your debt problems.

We’ve got your back!

If you are drowning in debt, why not get in touch? LAW FOR ALL has partnered with, DebtBusters, an award-winning debt management company, to assist our clients with taking back control of their finances. For more about our policy benefits, see our Policies.