Court Ruling Leaves Over-Indebted Consumers Vulnerable

Eva Smith (Attorney) @ Lucid Living

Debt counselling may not shield you from your creditors if they send you a letter of demand before you have applied for debt counselling.

The Supreme Court of Appeal (SCA) ruled last week that a creditor that issues you with a letter of demand – in legal terms, a section 129 notice – before you have applied to have your debts reviewed is allowed to take legal action against you to recover an outstanding debt.
If you then apply for debt counselling, the process will exclude any debt for which you have received a letter of demand.

If you become over-indebted, you can ask a debt counsellor to restructure your repayments, Peter Setou, the senior manager of education and strategy at the NCR, says.
Normally, all your credit agreements will be included in the debt restructuring process, he says. As a result, your creditors cannot enforce the credit agreements and take you to court (issue a summons) or attach your assets to settle any outstanding debts, Setou says.

But there is an exception in terms of the National Credit Act (NCA): if a credit provider takes steps to enforce a credit agreement before you apply to have your debt restructured, the relevant credit agreement is excluded from the debt review process.
“In practical terms, this means that the credit provider can take further legal action against the consumer to enforce the agreement even though they are under debt review, because that particular agreement is excluded,” Setou says.

There was some confusion over when a credit provider is regarded as having begun to enforce a credit agreement and therefore at what stage the agreement is excluded from the debt review process.

The NCA states that before a credit provider can enforce a credit agreement, it must issue a consumer with a section 129 notice that warns that legal action may be taken against the consumer unless he or she takes action to reach an agreement with the creditor about repaying the outstanding debt. Such action would be for the consumer to approach a debt counsellor.

The NCR argued that the notice to a consumer is only a notification and not a step to enforce the credit agreement.
The banks argued that a creditor starts to enforce a credit agreement once it issues a section 129 notice, and therefore the relevant credit agreement is excluded from the debt review process.

The SCA agreed with the banks’ interpretation of the NCA, saying that as soon as you receive a section 129 notice in respect of a credit agreement, that agreement is excluded from the debt review process. However, you can still apply for debt review in respect of the other credit agreements, Setou says.