What Is Debt Review in South Africa?

Debt review in South Africa is a legal process designed to assist individuals struggling with financial obligations. It provides a structured pathway for over-indebted consumers to manage their debts and work towards financial stability. This process operates under the National Credit Act (NCA), aiming to help individuals regain control of their finances.

Understanding Debt Review

Debt review, also known as debt counseling, is a formal and regulated process in South Africa. Its purpose is to assist consumers who find it difficult to meet their monthly debt repayments by restructuring their obligations. A Debt Counsellor, registered with the National Credit Regulator (NCR), facilitates this process. The NCR oversees the industry, registering and monitoring Debt Counsellors and Payment Distribution Agencies.

The process aims to consolidate multiple debts into a single, more affordable monthly payment, often involving reduced interest rates and extended repayment terms. This provides a structured approach to managing debt, offering legal protection from creditors. It was established by the National Credit Act of 2005 to help over-indebted South African consumers.

Eligibility for Debt Review

To qualify for debt review, an individual must be deemed “over-indebted” as defined by the National Credit Act. This means a consumer is unable to satisfy all obligations under their credit agreements in a timely manner. A registered Debt Counsellor conducts a financial assessment to determine if a consumer meets this criterion.

Applicants must be at least 18 years old, have a regular income, and possess a South African bank account where their income is deposited. If married in community of property, both spouses must be included in the debt review process. The process cannot be initiated if legal action has already been taken against the consumer, such as sequestration or debt administration.

Debts included in debt review are those regulated by the National Credit Act, such as personal loans, credit cards, store accounts, overdrafts, home loans, and vehicle finance. Debts like government or municipal debts, child support, medical bills, utility bills, and informal loans are excluded. Debts with existing court judgments or those where legal action was initiated prior to the debt review application are also excluded.

The Debt Review Process

The debt review process begins with a consumer consulting a Debt Counsellor registered with the National Credit Regulator. During this initial consultation, the consumer provides information and documentation for a financial assessment. Required documents include personal identification, proof of income, recent bank statements, and detailed statements for all debts, listing account numbers and outstanding balances.

After gathering information, the Debt Counsellor applies for debt review on behalf of the consumer. This involves submitting Form 16, outlining financial details, and Form 17.2, confirming over-indebtedness. The Debt Counsellor then notifies all credit providers of the application using Form 17.1, requesting a Certificate of Balance for each debt. This notification triggers a temporary halt on further legal action by creditors.

The Debt Counsellor drafts a new, affordable repayment plan to reduce monthly payments, extend repayment terms, and lower interest rates. This proposal is negotiated with credit providers. If agreed, or if negotiations are unsuccessful, the Debt Counsellor applies to the National Consumer Tribunal (NCT) or a Magistrate’s Court to obtain a consent or court order, making the repayment plan legally binding. Once the court order is in place, the consumer makes a single, consolidated monthly payment to a Payment Distribution Agency (PDA). The PDA distributes these funds to the various creditors according to the court-approved plan.

Life Under Debt Review

Once a consumer is under debt review and a court order has been granted, legal protection prohibits credit providers from taking further legal action, such as repossessions or summonses, for debts included in the review. This protection safeguards assets like homes and vehicles, provided the consumer adheres to the new payment plan.

A flag indicating “under debt review” is placed on the consumer’s credit record by the National Credit Regulator. This means they are temporarily unable to incur new debt or apply for any new credit, including loans, credit cards, or store accounts. While this flag is temporary and does not directly harm the credit score, it encourages focus on existing repayments. The consumer must consistently make the single, reduced monthly payment to the Payment Distribution Agency as stipulated by the court order. All communication regarding the debts under review is managed by the Debt Counsellor, providing a buffer between the consumer and their credit providers.

Completing Debt Review

To exit debt review, the consumer must pay off all restructured debts, with the exception of a mortgage, according to the court order. Once these obligations are fulfilled, the Debt Counsellor issues a Debt Clearance Certificate, also known as Form 19. This certificate confirms that the consumer has completed the debt review process.

Upon issuance of the Debt Clearance Certificate, the Debt Counsellor notifies all credit bureaus to remove the debt review flag from the consumer’s credit record. This restores the consumer’s creditworthiness, allowing them to access credit again over time. If a mortgage was part of the debt review, the Debt Clearance Certificate can be issued once all other debts are settled, even if the mortgage payments are still ongoing, allowing the consumer to continue paying the mortgage outside of the debt review framework.