Understanding Debt Review: When you need it and what to look out for.

Debt review is a legal process designed to help over-indebted consumers manage their finances and avoid legal action. If you find yourself struggling to meet monthly debt repayments, debt review can provide a lifeline. However, it’s essential to understand how it works, when to consider it, and what the process involves.

You may need debt review if:

• You’re struggling to meet monthly debt repayments. If you're unable to pay your bills in full and on time every month, it might be a sign that you're over-indebted.
• If creditors are threatening legal action and have started sending final demands or threatening to repossess assets, it's time to act quickly.
• You’re using credit to pay for essentials. When you rely on credit cards or loans just to pay for necessities like groceries, rent, or utilities, it's a sign that your financial situation is unsustainable.
• Your debt exceeds your income. If your total monthly debt repayments are higher than your net income, it's nearly impossible to keep up without assistance.

Before jumping into debt review, here are some important considerations:

1. Check if you're eligible. Debt review is intended for consumers who are over-indebted and unable to repay their debts. Your debt counsellor will assess your financial situation and determine if you're a good candidate for the process.
2. Understand the long-term commitment. Debt review is a structured, long-term plan that reduces your monthly payments, but you must follow the plan until all your debts are settled or you're declared no longer over-indebted by the High Court.
3. While under debt review, you cannot take on any new credit until the process is complete and you’ve received a clearance certificate.
4. Ensure your debt counsellor is registered. Only registered debt counsellors can offer legitimate debt review services. Verify that the company you're working with is accredited by the National Credit Regulator (NCR).

What does the process look like? 
In terms of the National Credit Act, The process of debt review is regulated by the National Credit Act (NCA) to ensure consumers are protected. Here's a breakdown of the steps involved:

Assessment by a Debt Counsellor:
The first step is to approach a registered debt counsellor. They will evaluate your financial situation by comparing your income to your monthly expenses and debt obligations. If the counsellor finds that you're over-indebted, they will recommend debt review.

Debt Counsellor Submits an Application (Form 16):
You will fill out Form 16, which provides the debt counsellor with authority to act on your behalf. You’ll also provide supporting documents like pay slips, bank statements, and a list of all creditors.
Debt Counsellor Notifies Creditors:

The counsellor will inform all your creditors and credit bureaus that you have applied for debt review by issuing Form 17.1 and obtaining certificates of balances (COBs). A Form 17.2 will be sent thereafter informing the credit providers that you’re accepted for debt counselling. During this period, creditors are restricted from taking further legal action against you.
Debt Repayment Plan:

The counsellor will negotiate with your creditors to come up with a reduced monthly repayment plan based on your affordability. This proposal is then submitted to the National Credit Triunal (NCT) or Magistrate’s court for a court order. 

NCT or Court Order and Payments:
Once the order is granted incorporating the repayment plan, it becomes a binding agreement. You will make a single monthly payment to the Payment Distribution Agent (PDA), who will distribute the funds to your creditors. 

Completion of Debt Review:
After all your debts have been repaid, the debt counsellor will issue a clearance certificate, and your credit record will be updated to reflect that you are no longer under debt review.

Things to Watch Out For

1. Beware of hidden fees. Make sure the debt counsellor is transparent about all costs involved, including administration fees, fees charged by the Payment Distribution Agent, reckless lending investigation fees and legal costs for the order.
2. Understand the impact on your credit. Debt review will negatively affect your credit profile during the process, but it’s a temporary measure. After receiving your clearance certificate, your credit profile will be restored.
   Be patient. Debt review can take several years depending on the amount of debts you have and the monthly repayments you are making.
3. Make sure you understand if all your proposals have been accepted or not as this affects the interest rates applicable. If a credit provider did not accept a proposal, that means you’ll be paying a reduced fee but at the original (not reduced rate) and the result is that you will take longer to settle or pay that debt in full.
4. Debt review can provide much-needed relief if you're drowning in debt, but it requires a long-term commitment. Make sure you fully understand the process and work with a reputable, NCR-registered debt counsellor. If done correctly, debt review can help you avoid the stress of legal action and get back on the path to financial stability.

If you're unsure whether debt review is right for you, reach out to an attorney that understands the process or reach out to a debt counsellor to get an expert opinion on your financial situation.

Yonela Ndila | Operations Manager and Admitted Attorney

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