Debt Counselling

What is Debt Counselling?

Debt Counselling is a formal legal process that provides for a consumer to be declared over indebted and for the Debt Counsellor to negotiate a restructured payment plan and obtain a court order confirming the new repayment plan. The Debt Counsellor must be registered with the National Credit Regulator and have an NCRDC number. The ICS uses the services of a registered debt counsellor.

Once declared over indebted and accepted into debt counselling the following will happen:

  • You will be protected from legal action for a period of 60 days from the day of application and after the arrangement has been concluded as long as you pay according to the new arrangement;
  • All your creditors will have to stop calling you and liaise with your debt counsellor;
  • You will be listed at the Credit Bureau as being under debt counselling;

 

For as long as you are under debt counselling you will not be allowed to get credit until you are issued with a Clearance Certificate once you have satisfied your obligations as per the Court or Tribunal order and in line with the National Credit Act.

 

The purpose of Debt Counselling

When you are struggling financially and are unable to meet your monthly debt repayments, Debt Counselling is a way of providing you with relief in the form of reducing your monthly instalments as well as interest and fees. A Debt Counsellor has to be registered with the NCR and have an NCRDC number.

 

Advantages of Debt Counselling:

  • You will be protected from legal action for a period of 60 days from the day of application and after the arrangement has been concluded as long as you pay according to the new arrangement;
  • Your assets will be protected from repossession;
  • All your creditors will have to stop calling you and liaise with your debt counsellor;
  • Fees and interest can be reduced ;
  • Every payment reduces your debt;
  • Once you have paid your short term and unsecure credit agreements and cleared the arrears on your home loan you can be issued with a Clearance Certificate;
  • Your credit bureau record will be cleared once you have been issued with a clearance certificate.

 

Things to Note about Debt Counselling

  • Once you have been declared over indebted you cannot cancel the process, unless you go to court;
  • You will be listed at the Credit Bureau as being under debt counselling;
  • For as long as you are under debt counselling you will not be allowed to get credit until you are issued with a Clearance Certificate;
  • It takes commitment to stick to the process.

 

The overall objectives for the DEBT COUNSELLOR is to:

  • Assess the full extent of your debt situation and your affordability to repay your debts at an agreed reasonable amount;
  • Provide a debt remedy that:
    • Provides you with an acceptable standard of living while repaying your debts according to your affordability – this includes retaining the home and a vehicle where possible;
    • Provide you with an agreed, affordable and realistic monthly budget in order to resolve the situation in the shortest possible time;
    • Provide a repayment scheme acceptable to your creditors and confirmed by the Court;
    • Prevent repossession of assets where possible;
    • Rehabilitate you without detriment for the future; and
    • Allow you to get on with your life.

 

The overall objectives for YOU should be:

  • To work honestly and openly with the debt counsellor;
  • Declare all assets and liabilities – including all incomes and debts, and including bonuses and salary increases;
  • To pay the registration and debt counselling fees as disclosed at the first meeting;
  • To adhere to the agreed instalments and to pay these at the agreed dates;
  • To keep in regular contact with the debt counsellor for the full length of the agreement; and
  • To agree and commit to the debt remedy – this may include surrendering credit cards, closing accounts and realising some assets.

 

The overall objectives for your CREDITORS should be:

  • To work with the debt counsellor to assist in the normalisation of the debt;
  • To favourably consider a reasonable repayment proposal;
  • To ensure the consumer is assisted in a fair and unbiased way throughout the process of repayment;
  • To assist the consumer to rehabilitate as soon as possible; and
  • To assist the consumer to restore his/her credit worthiness as soon as possible.

 

Who goes for debt counselling?

Any consumer who has entered into a credit agreement and is declared over indebted by the debt counsellor can go for debt counselling. However certain credit agreements can be excluded from going under debt counselling if the credit provider has already proceeded with legal action. It is therefore very important that you act early when you are experiencing repayment problems so that all your credit agreements can be included under debt counselling.

If the credit provider has already taken legal steps then mediation might be the solution.

 

Will I have to pay for the service?

Yes – the service is not free, there are recommended fees laid down by the National Credit Regulator (NCR) and the fee guidelines are available from the NCR website at www.ncr.org.za. How these fees are paid is explained in the table below:

Debt Counselling Fee Guidelines Approved Fees
1. A Debt Counsellor may receive the following fees in respect of consumers who have applied for debt counselling:
1.1. An application fee, limited to the amount prescribed in terms of Schedule 2 (2) of the Act, recoverable directly from the consumer upon receiving an application for debt review; R50
1.2. A rejection fee of R300.00 (excluding VAT) in respect of consumers whose applications have been rejected in terms of section 86(7)(a); R300 (excl vat)
1.3. A restructuring fee of the lesser of the first instalment of the debt re-arrangement plan in respect of a consumer whose applications have been accepted in terms of 86(7) (b) or 86(7) (c).
Maximum allowable fee for a Single Application (Once off) R6000 (excl vat)
Joint Application (Once off) R6000 (excl vat)
1.3.1. 100% of the fee is payable at the first instalment. Yes
1.4. Should a Debt Counsellor fail to submit proposals to Credit Providers or refer the matter to a Tribunal or a Magistrate Court within 60 business days from date of the debt review application the Debt Counsellor has to refund 100% of the fee paid by the consumer (excluding the application fee). 100%
1.5. A monthly after-care fee payable to the DC 5% up to a max of R400 (excl VAT) for the first 24 months, thereafter reducing to 3% to a max of R400 (excl VAT).
1.5.1. Payment of the monthly after-care fee is to commence in the 2nd month after the amount in 1.3.1 above has been paid. Yes
1.6. Should the consumer withdraw from the process after completing stages 1.3 above, a fee equal to 75% of the restructuring fee as per 1.3 above is payable by the consumer. Yes
1.7. Legal Fees A legal fee for a consent order of R750. Any additional legal fees to be negotiated separately with the consumer and the DC must be able to produce pro-forma invoices.

Note: all amounts are excluding VAT

 

Visiting the Debt Counsellor

Before you visit the debt counsellor you will need to gather together the following documents:

  1. Copy of your identity document/passport
  2. A copy of your most recent three month salary/wage slip (If you receive overtime or allowances that are not of a regular nature then the last 3 months are required to determine an average)
  3. Your last three months bank statements for all your bank and investment accounts
  4. A list of other debts from friends or family members

 

If you and your spouse/partner share your income and expenses or are married in Community of Property then:

  1. A copy of your spouse/partner’s ID/Passport
  2. A copy of your spouse/partner’s most recent three month salary/wage slip (if you receive overtime or allowances that are not of a regular nature then the last 3 months’ are required to determine an average)
  3. Their last three months bank statements for all their bank and investment accounts

 

Debt Counselling Steps (BY DCASA)

Step 1:

Application

Day 1

 

You will provide details of your income, monthly budget and debt commitments. Your Debt Counsellor will do an initial assessment to check that you are over-indebted and a new budget will be agreed upon. You will receive details of all cost and be requested to sign Form 16. You will receive new budget guidelines. You have applied for Debt Review in terms of Section 86 of the NCA.

You have to be completely honest when you complete the FORM 16

Step 2:

Notify CP’s & CBs of application for Debt Review

Day 1- 5

Your Debt Counsellor will contact all your Credit Providers and the Credit Bureaus to verify your debt by sending out a Form 17.1. You will be listed on the Credit Bureaus as under Debt Review. This listing will remain until you have repaid your debt or when a Clearance Certificate is issued. Repayment terms will be negotiated with all Credit Providers. Your interim payment plan is loaded at your Payment Distribution Agency (PDA)

You need to commence payment in line with the interim repayment plan.

Step 3:

Over indebted notice

Day 6 – 30

Credit Providers will confirm outstanding balances and your Debt Counsellor will notify your Credit Providers and Credit Bureaus that you are over-indebted by sending a Form 17.2. Debit Orders, for debt repayment only, need to be cancelled at this point to allow the interim repayment plan to kick in.

You need to sign a Debit Order cancellation on your original credit agreement and submit this to your Credit Providers and then make new payments as per interim repayment plan.

Step 4:

Repayment Plan

Day 31 – 45

Your repayment plan will be finalised. Credit Providers will either accept or reject your repayment proposal. This will enable your Debt Counsellor to finalise your repayment plan and to submit this to your PDA. Your PDA will collect a single payment from you and distribute the payment to all your Credit Providers. You will receive a SMS to notify you every month. At this point your Debt Review Court application can be finalised. You will be requested to sign an Affidavit. Do not be afraid to do this:

  • the law is on your side as long as you follow the process.
  • Your Debt Counsellor will assist you all the way.
  • You need to sign the Affidavit and keep up with the payments according to the plan.
Step 5:

Court Order

Day 46 – 60

A Court date will be obtained by your Debt Counsellor. This usually is after the expiry of the 60 days. The aim is to obtained approval from Court on the proposed Debt Review plan. As long as you make payment you are protected. Your Debt Counsellor will monitor the process and advice you accordingly along the way You need to continue with payments and refer all enquiries to your Debt Counsellor.

The Court order will confirm repayment plan. You need to keep up payments

 

Payment Distribution Agents

If you are or intend to go under debt counselling please note that debt counsellors are prohibited from collecting money from you and distributing it to creditors.

Once accepted under debt counselling you will pay one instalment which will then be distributed to your credit providers by a Payment Distribution Agent. The PDA is also responsible for the provision of monthly statements to consumers and payment schedules to debt counsellors, employers and credit providers as well as attending to queries from the respective parties.

You can opt to pay the creditors yourself or your debt counsellor should help you to appoint an NCR registered payment distribution agency to collect and distribute money to your creditors.

Payment Distribution agencies are required to deposit  monies collected from  consumers into a trust account opened at a registered bank and distribute the monies to the credit providers and debt counsellors within five (5) days of receipt, failure which reasons must be submitted to the National Credit Regulator. They are also required to provide you with a monthly statement of how your money was distributed, to who and the balances remaining for each of your credit agreements.

 

Payment Distribution Agents are allowed to charge the following fees:

  • A fee of R5.00 for each payment of between R100.00 and R200.00 distributed in respect of each credit agreement included in the consumer’s debt re-arrangement plan;
  • A fee of R10.00 for each payment between R201.00 and R500.00 distributed in respect of each credit agreement included in the consumer’s debt re-arrangement plan;
  • A fee of R15.00 for each payment exceeding R500.00 distributed in respect of each credit agreement included in the consumer’s debt re-arrangement plan; and
  • A fee of R3.00 is payable for any additional monthly statement requested by the consumer.

 

As a consumer you can choose to continue to pay your creditors directly and not use a PDA, however you must understand the implications of this option as per the guidelines below. If you opt to make direct payments you should be aware of the following:

  • You remain responsible to make all payments as re-arranged, in full and on time.
  • Proof of payments must be sent to the debt counsellor on a monthly basis for record keeping and to enable provision of after care service as a consumer cannot be under debt review without a debt counsellor.
  • Consequences of making short or late payments(e.g. risk of termination by credit providers)
  • Debt counselling fees are payable to a debt counsellor for services rendered and this includes payment of aftercare fees.
  • For a debt counsellor to issue a clearance certificate, all after care fees must be up to date.
  • Where the debt counsellor has suspended provision of service, a consumer must provide proof of settlement letters from credit providers for a debt counsellor to issue a clearance certificate.

 

(Cancellation) of Debt Review

Under certain circumstances a credit provider can withdraw a credit agreement from debt counselling (Terminate) and proceed with legal action.  Termination can happen if you default on your debt counselling payments or if your debt counsellor does not finalise the process within the prescribed time limits.

The Credit Amendment Act, 19 of 2014 determines that a credit provider is not entitled to terminate a debt review after the debt counsellor has referred the matter to the Magistrate’s Court for a debt review order while the hearing is still pending.

 

Clearance Certificates

In terms of section 71(2)(b)(i) of the NCA, a debt counsellor must issue a Clearance Certificate (Form 19) if the consumer has  fully satisfied all the debt obligations under every credit agreement that was subject to the debt re-arrangement order or agreement. Once a Clearance Certificate has been issued Credit Bureaus will be required to remove all the information relating to debt counselling and you can then start getting credit again. There are now  new rules that  allow you to finish debt counselling early after you have settled your unsecured loans and cleared your arrears on the Home loan.

 

(1) A Consumer whose debts have been re-arranged in terms of Part D of this Chapter must be issued with a Clearance Certificate by a Debt Counsellor within seven days after the Consumer has –

(a) Satisfied all the obligations under every credit agreement that was subject to that debtRe-arrangement order or agreement in accordance with that order or arrangement; or
(b) Demonstrated:
(i) Financial ability to satisfy the future obligations in terms of the re-arrangement order or agreement under-
(aa) a mortgage agreement which secures a credit agreement for the purchase or improvement of immovable property; or
(bb) any long term agreement as may be prescribed;
(ii) that there are no arrears on the re-arrangement contemplated in subparagraph (i); and
(iii) that all obligations under every credit agreement included in the re-arrangement order or agreement other than those contemplated in subparagraph (i), have been settled in full.

 

Withdrawing from Debt Counselling

It is very important that you think very carefully about going under debt counselling because once you have been declared over indebted and accepted into the process it will be very difficult to withdraw from the process and even more difficult to remove the Debt Counselling flag from your credit bureau record. Below is an extract from the Guideline:

 

Can a debt counsellor terminate or withdraw debt review process?

NO. A debt counsellor does not have statutory powers to terminate or withdraw the debt review process. This means that a debt counsellor can no longer issue Form 17.4 and update DHS with status G (Voluntary withdrawal by consumer) or H (Withdrawal by a debt counsellor). There is However varied ways in which a consumer can be withdrawn from debt review which will be set out below.

 

Can a consumer withdraw from debt review process once a debt review court order has been obtained?

Once a debt review court order has been obtained a consumer cannot terminate or withdraw the debt review process, they can however approach the court to rescind the order or apply for an order which declares that the consumer is no longer over-indebted. Upon receipt of the order, a debt counsellor will notify the credit providers of the withdrawal by means of Form 17.W and update DHS with status G.

 

Can a consumer withdraw or terminate debt review process prior toobtaining debt review court order?

Consumers can only withdraw or terminate the debt review process prior to declaration of over indebtedness as per section 86(7) of the Act and issuance of Form 17.2 subject to payment of debt counselling fees as per NCR Debt Counselling Fee Guidelines.  If a determination is made and no court order is in place, the consumer will remain under debt review. A debt counsellor will notify the credit providers of the withdrawal by means of Form 17.W and update DHS with status G.

 

Can a consumer be transferred to another debt counsellor?

A consumer under debt review may be transferred to another debt counsellor subject to payment of all debt counselling fees where it has been established that the previous debt counsellor followed the correct process. • Form 17.7 should be used to facilitate this process.