| Debt Status in South Africa explained |
| 1 |
Voluntary arrangements with your credit providers: |
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If you have a cash flow problem that might probably only last a few months we suggest that you contact your credit providers yourself. Explain your situation and come to alternative arrangements with them. Make realistic arrangements so that you can stick to the payments agreed upon. However, if you can’t stick to the arrangements inform them and keep them up to date. Don’t just default without giving notice. |
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| 2 |
Administration |
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If your total debts are less than R50 000 you can apply to go under Administration with an Administrator. The administrator will apply to the Magistrates Court for an order to place you under Administration. However, since Administrators are not regulated we daily find many irregularities where Administrators do not pay over funds to credit providers and if they do then only once every three months which means interest continues to run against you. Unless there are no other options we suggest that this option is used as a last resort. |
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| 3 |
Debt Mediation (DM) |
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The credit industry saw that debt counselling was not working and the industry came together to form the National Debt Mediation Association. The purpose of the NDMA is to establish an environment where over-indebted clients can be assisted to pay off their debts by providing a pre-agreed formula to restructure debts. However, should you not be able to rehabilitate within 5 years you will have to follow the DC route. |
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| 4 |
Debt Counselling (DC) |
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The National Credit Act (NCA) came into effect on 1 July 2007 and it makes provision for debt counselling where over-indebted clients are assisted to restructure their debts according to the rules as set out in the Act, This debt mechanism currently causes a lot of practical/procedural problems. The credit providers and debt counsellors do not share the same view on how the provisions of the Act should be implemented and the Courts are not exactly certain themselves. This is proving to be very expensive for the client in both debt counsellors and legal fees but is in many cases the only option. |
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| 5 |
Voluntary Sequestration |
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If a person is so over-indebted that no reasonable proposal can be made to the credit providers then a client might be referred for sequestration. A sequestration is a high court application that has to be handled by an attorney. This option can be very expensive as the court will only grant a sequestration order if the credit providers will get between 10 and 20 cents of every rand. The legal fees can be anything starting from R10 000 for the initial application and rehabilitation (3 to 10 years after the first application) and this will be at least another R10 000. The court will not grant the order if the debtor cannot show “benefit to his creditors” so this debt mechanism is usually advisable to debtors with substantial assets. |
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| 6 |
Forced sequestration |
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When credit providers take legal action against a client they might find that the client doesn’t have any substantial assets and that the client is a “person of straw”. Then the credit providers might take it upon themselves to sequestrate the client. |
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Voluntary arrangements |
Administration |
Debt mediation (DM) |
Debt counselling (DC) |
Voluntary Sequestration |
Forced Sequestration |
| Will it get noted on my credit record |
Not necessarily. |
Yes |
Yes |
Yes |
Yes |
Yes |
| If yes, for how long? |
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Until all your debts are paid off. |
Until all your debts are paid off. Then a clearance certificate will be issued |
Until all your debts are paid off. Then a clearance certificate will be issued |
Until you apply for a rehabilitation order (usually 3 to 10 years) |
Depends on your situation. |
| Do I pay for the solution? |
No |
Yes. The fees are extravagant therefore this solution is to be avoided |
Yes, debt mediators charge for this solution |
Yes, debt counsellors charge an upfront fee and an after care fee |
Yes |
To a degree |
| For whom would this solution be suitable? |
If you have a short-term cash flow problem |
Clients with total debts of less than R50 000 and no other solution solves the problem. |
Clients who are not that over-indebted. We are working to expand this solution |
Clients who are up to 50% over-indebted. |
Clients who can offer credit providers around 20c of every Rand and who have ten to twenty thousand Rand available for legal fees |
Clients who are completely insolvent and who can’t offer the credit provider any funds. |
| Can I get more credit? |
Yes |
No |
No |
No |
No |
No |
| Will I have to sell my house / assets |
Not necessarily |
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Depends on your situation but not necessarily |
Depends on your situation but not necessarily |
Yes, all your assets will be realised |
Yes, all your assets will be realised |
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