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20 Jun 2011

Debt Counseling Responsible For the Slide In Judgments

Debt Counselling, Judgments 6 Comments

Adv Randolph Samuel @ Lucid Living

In April 38 000 civil judgments for debt amounting to R383m were recorded, according to the latest figures released by Statistics SA.

The  number of civil judgments for debt decreased 36.3% year-on-year (y/y) in April. This followed a 22.1% y/y decrease in March.

In addition, the number of civil summonses issued for debt fell 25.1% y/y in April.

civil judgment refers to the final order of a court in a civil lawsuit, while a civil summons refers to a legal document informing an individual that a lawsuit has been filed against him or her.

A civil judgment process, is the course of action taken by a creditor to enforce their rights under a credit agreement. The civil judgment then permits the creditor, to repossess your assets or garnishee your salary, to settle the debt owed to them.

According to statistics published by the National Credit Regulator (for the period: Q4 2010), 8.61 million consumers had defaulted on repayment of their credit agreements, for more than 3 months.

When a consumer defaults on repayment of the instalment on a credit agreement, the natural course of action for the creditor to follow is to obtain a civil judgment. Therefore we must ask an obvious question: if 46.5% of consumers are in default on repayments of their credit agreements, why is the number of civil summonses and civil judgments declining?

The answer (in part) can be attributed to: debt counseling.

When a consumer applies for debt counseling/debt review, the creditor is prevented from pursuing legal action against the consumer. This means that the creditor has to wait for the outcome of the debt review hearing, before pursuing legal action – even if the consumer is in default of repayment.

This, in my view, is one of the major drivers in the dramatic decline in the number of civil summonses and civil judgments during the 1st quarter of 2011.

However, a recent decision by the Supreme Court Of Appeal (Collett v Firstrand Bank (766/2010) [2011] ZASCA 78) – delivered on 27 May 2011- is set to change the status quo. The court held that a credit provider was entitled to terminate a debt review proceeding, at any time, if the consumer was in default of repayment terms, under the credit agreement.

This court ruling, now opens the door for creditors to terminate debt review proceedings, the moment the consumer is in default of the repayment terms and enforce their rights under the agreement – by taking legal action. This is a departure from the manner in which debt counseling is currently applied.

Most creditors are still opposed to debt counseling and have done much to thwart its success. I have no doubt, that this new court ruling will result in creditors reverting to old tactics and aggressively pursuing legal action. This is sure to see the number of civil summonses and civil judgments rise dramatically, in the coming months.

If you are not meeting your monthly repayments on loans, talk to a Lucid Living Credit Counselor NOW.

The earlier you address the issue, the more options you have. If you let the situation deteriorate, by doing nothing – you will inevitably have a civil judgment taken against you and be disqualified from obtaining any new credit for a minimum of five years – because of a blacklisting on the credit bureau.

6 Responses to “Debt Counseling Responsible For the Slide In Judgments”

  1. Eddie Fourie says:

    I entered debt counseling about 6 months ago. My bank did everything they could to stop the process and reposess my house.
    Fortunately the debt counseling was made an order of court and my house was protected.
    If I did not enter debt counseling, my bank would have taken judgment and reposessed my house.

  2. vanessa de wet says:

    I entered into debt couselling 24 months ago. Never defaulted on any payments during that period…Imperial Bank have just repossessed my vehicle on Monday, and I found out that the debt counsellors that I used, Octagen, never received an order of court to say that I was under debt counselling, so I did not have a leg to stand on, it has cost me R12000 in legal fees and I still had to surrender the vehicle on Monday. The debt counsellors wont even return my calls……So I dont have much faith in debt counselling.

  3. RandolphLucid says:

    Good day

    I am truly sorry to hear about your negative experience.
    In your circumstances, the debt counselors have not acted lawfully or in your interests.
    After 2 years, they have no excuse for not having obtained a court order, confirming the debt review.
    In addition, if the credit provider was receiving reasonable monthly repayments, they usually will not take legal action – you should confirm whether your debt counselor was paying the funds over to the credit provider.
    There has been a spate of media coverage of debt counselors who have defrauded consumers – it is therefore critical to choose your debt counselor with care.
    Debt counseling is a fantastic right for consumers – unfortunately its implementation has been poor. If you chose an ethical and professional debt counselor, you will benefit from the rights afforded to you under the NCA.
    It may well be too late in your case, but it is worth bearing in mind that: a consumer can migrate (move) from one debt counselor to another – if the consumer is dissatisfied with the service they are receiving from the current debt counselor.

  4. vanessa de wet says:

    Thanks for your response. Yes, we went through a PDA called Hyphen for all the time we were with Octagen. Unfortunately we have had to now sequestrate because of the interest accrued on the house, because of the lack of court order. What recourse do I have against debt counselling agency?

  5. RandolphLucid says:

    Good day

    Your agreement with the debt counsellor and the PDA will have to be assessed to determine your recourse. If either failed to honor their contractual undertakings or acted unlawfully (i.e. transgressed the National Credit Act), you will certainly have recourse against them.

  6. Johan Grobler says:

    It is simply not true that debt counseling is the cause of the drop in judgments. The shift of sentiment in favour of debtors and the degree to which the administration of justice makes it almost impossible to do debt collection can best be declared the reason for this fall. When you visit the Pretoria Magistrates’ Court for instance you would find that debt collection has almost come to a standstill (in comparison to what it was) whilst approved debt review applications are nothing in comparison to the reduced judgments.

    Until the government amends the NCA it will be an overrated remedy that no credit provider really takes serious.

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