Adv Kate Thambiran @ Lucid Living
Debt counseling has been met with skepticism by some and misunderstanding by others. Unfortunately, both views are underpinned by a lack of adequate knowledge.
Debt counseling is devised to assist over-indebted persons.
You are over-indebted if the balance of your income less your expenses is insufficient to meet the installments of your credit obligations. Put another way, you do not have sufficient funds to pay your monthly accounts.
In circumstances where a person is over-indebted, debt counseling permits the person’s credit obligations to be “re-structured”. The outcome of debt counseling means:
- Your monthly instalments are reduced to an amount that you can afford;
- You retain possession of your assets or the benefit of money borrowed; and
- Creditors are prevented from taking any enforcement or legal action against you (i.e. repossessing your assets or blacklisting you on the credit bureau or obtaining judgment against you).
People argue that by going into debt counseling they will be prevented from accessing further credit. What they fail to realize is that if they are over-indebted, no creditor is legally allowed to offer them credit. Prior to granting an applicant credit, the creditor must perform an affordability assessment (i.e. can the person afford the monthly instalments). If the applicant is over-indebted, they will fail the affordability assessment. The creditor is legally prohibited from granting credit to an over-indebted person.
People are reluctant to enter debt counseling because of their perception of a social stigma that is too burdensome to bear. Having to explain to family and friends why the car and house was repossessed is a source of embarrassment and humiliation. Yet the reality is that with debt counseling there is no visible evidence of their financial demise. Nothing is repossessed or attached. You retain possession of your assets and repay a lower monthly instalment.
South Africa is the only country in the world that offers consumers this degree of protection. The National Credit Act was designed to empower consumers with much needed rights. Credit providers fought the enactment of this law, tooth and nail. They understood the implications and were adverse to it. Fortunately, Government’s will prevailed and consumer’s got the protection and power they needed.
Ignore the propaganda and negative publicity (mainly from credit providers) about debt counseling. It is your legal right, to get the protection afforded by debt counseling. Ignoring debt counseling as an option, shifts the balance of power right back to the creditor – do so at your peril.