07 Feb 2011

Debt Counselling Stops Legal Action

Debt Counselling No Comments

Eva Smith (Attorney) @ Lucid Living

Credit providers (including the “big 4” banks) recently signed a code of conduct in which they agree to change how they handle debt restructuring arrangements and to hold off on legal action under certain circumstances.

The code requires credit providers to implement the repayment arrangements proposed by debt counsellors, provided they have complied with their obligations, under the code. Credit providers must also refrain from terminating debt review processes or resorting to litigation where consumers have applied for debt counseling or lodged a dispute with an ombudsman.

Credit providers also agreed to institute a seven-month moratorium, from November 30 last year to June 30 this year, on legal action in respect of bank debts, including mortgage bonds and vehicle finance, for over-indebted consumers who applied for debt counselling before November 30 but who have not yet started the debt counselling process.

The moratorium applies to consumers who have not reached an agreement with their creditors about a repayment plan or who are still waiting for their court cases to be heard.

Peter Setou, the senior manager of education and strategy at the NCR, says that in a few cases the High Court’s interpretation of the National Credit Act (NCA) has differed from that of the NCR.

“In such instances there has been the view that a debt counselling court order or consent agreement must be finalised within 60 days of the consumer applying for debt counselling. Some credit providers have taken advantage of this and chosen to pursue legal action after two months of the consumer’s debt counselling application, on the basis that the matter is unresolved,” he says. The NCR believes this is unreasonable, because in some cases consumers have to wait six months for a court hearing, Setou says.

“We are going to make legislative amendments to the NCA to make it clear that consumers cannot be subject to legal action once they have applied for debt counselling. However, as this process may take some time, the NCR has also applied to the Johannesburg High Court for a declaratory order on this matter,” Setou says.

The moratorium is intended to ensure that people whose debt counselling cases are on the court roll do not lose their homes while they wait for their debt review applications to be finalised through either a consent agreement with their creditors or a court order.

However, the banks have made sure that their interests are protected. The moratorium applies only to credit agreements with the four major banks and if you meet the following requirements:

• By November 30 2010 you had already applied for debt counselling and your case has not yet been resolved; and

You are repaying your debt. If you are not already doing so, by March 31 this year you must be meeting at least 80 percent of your monthly home loan instalment, 70 percent of your monthly vehicle finance instalment and 1.67 percent of the total balance outstanding in respect of any other debt to the bank.

First National Bank (FNB) clients must meet a further condition: they must be paying a minimum of 50 percent of their debt instalments with FNB.

If between now and March 31 you reduce the debt repayments you are making, you will not qualify for the moratorium, which means a bank will be able to take legal action against you.

If you meet all the conditions and you qualify for the moratorium, you will be allowed until June 30 to finalise your debt counselling through either a consent agreement or a court order – without the banks taking any legal action against you.


Contact LUCID Living (010 590 5617) now to find out if you qualify for the moratorium or to suspend any termination and enforcement actions that may already be under way. Protect yourself from legal action, repossession and blacklisting.

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