The Covid-19 crisis has exposed a gap in our credit law, with debt counsellors divided on how they can help you if you are now unable to pay your debts in terms of your debt rearrangement order. 

In terms of the National Credit Act (NCA), if you're in debt review and you fail to make payment according to the debt review order, your creditors have the right to remove the account from debt review and take legal action against you. This is because your failure to pay places you in contempt of court.

The act makes no provision for a change in your financial circumstances, be it retrenchment, illness, death of a spouse or maternity leave, for example.

Some banks have undertaken not to terminate their accounts from debt review during lockdown.

At the end of March, African Bank sent a letter to debt counsellors informing them that the bank would not terminate any accounts during lockdown. And Absa's managing executive of everyday banking, Cowyk Fox, says the bank is “applying leniency” in this regard.

Absa, Nedbank and FNB say they are following a guideline issued by the National Credit Regulator (NCR) last month on how to deal with consumers in debt review whose financial circumstances have deteriorated.

The guideline introduces a form which your debt counsellor submits to your creditors — along with supporting documents, like a letter from your employer — notifying them of your change in circumstances. It's then up to your creditors to decide what, if any, relief they may offer.

The guideline states that submitting the form “doesn't override” a court or National Consumer Tribunal order, and if you do not pay according to your order, you will be in contempt of court or the tribunal with potential legal consequences.

It recommends that when there's a material change in your circumstances, you should lodge an application to vary the court or tribunal order, with a new proposed payment plan.

If you don't yet have a debt review court or tribunal order but your matter has been set down for a hearing, the guideline says that in addition to filling out the new form, you must instruct your attorney to file a supplementary affidavit to bring to the court's attention the change in your circumstances.

Credit providers will descend on these consumers like a pack of wolves. 
Zune Coetze, debt counsellor

But some debt counsellors say that in the absence of a payment moratorium prescribed in regulations, debt counsellors who recommend you go this route expose you to the risk of litigation after the lockdown and open themselves up to damages claims.

If debt counsellors submit to your creditors that you can no longer pay your debts, they might prejudice you by admitting an act of insolvency, says a debt counsellor who asked not to be named.

Debt counsellor Zune Coetzer says counsellors who advise you to fill out the form are misleading you with a false sense of security. “When it comes to cars and houses, lawyers for credit providers will descend on these consumers liklikepack of wolves,” she says.

Once a court order has been issued rearranging your debts, your debt counsellor doesn't have the power to negotiate contractual issues on your behalf, she says.

She recommends that if you're in debt counselling, deal directly with your creditors. “Negotiate a lower instalment, or ask for a three-month payment holiday, which is an extension of your credit agreement. This constitutes a contractual change which means you'll get a new contract. When you go back to work in a few months, nothing stops you from paying extra to eradicate the arrears, which will have a marginal impact on your debt.”

If you make a new arrangement with your creditors, instruct your payment distribution (PDA) agent to adjust your payments accordingly.

The PDA distributes your money to your creditors, Coetzer says.

Attorney Leonard Benjamin says prioritise paying off your home loan and vehicle instalments.

Should you be taken to court for failing to pay the rest of your debts, provided you are living frugally, no court will expect you to forfeit your home or car to pay short-term debt, he says.

“Talk to the bank. Ask them to extend your bond by six months so that you don't fall into arrears.

“They can't take judgment against you if the arrears are too low. There's a practice directive in the Western Cape that if you are six months or less in arrears, the matter must be postponed.”

Benjamin says you must communicate with your creditors and document everything to show the courts that you are not a chancer and that you made a viable counter-proposal to the bank.

DebtBusters, one of the largest debt counselling firms in SA, is following the NCR's guideline. Benay Sager, the chief operating officer at Intelligent Debt Management Group, which owns DebtBusters, says the debt counselling industry is relying on the collective goodwill of the credit industry to help consumers who want to continue paying their debts in debt review. It is working with credit providers on a case-by-case basis to make alternative arrangements for consumers who cannot pay.

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