How Debt Counselling Works

How Debt Counselling Works

If you suspect that you are over-indebted of find that your expenses exceed your income, you can apply to a debt counsellor for debt counselling.

The debt counsellor will assess your financial situation. If he or she concludes that you are in fact over-indebted, the counsellor will draw up a repayment plan.

The debt counsellor must notify all your creditors within five days of your application that you are undergoing debt counselling.

In terms of the National Credit Act, creditors may not charge you further interest once the interest and the charges on your debt reach the same level as the outstanding capital amount, regardless of any repayments you make. Previously, if you made a payment towards your debt and, as a result, the amount of unpaid interest fell below the amount of the outstanding capital, a creditor could again charge you interest until the amount of unpaid interest equalled the outstanding capital.

If you and your creditors agree to the repayment plan, your debt counsellor will present the to the National Consumer Tribunal for approval. If any of your creditors disagrees with the plan, the counsellor has to refer the matter to the magistrate’s court that has jurisdiction over the area in which you live for an order to restructure your debts. the magistrate will make a ruling after hearing representations from all parties.

The magistrate can:

  • Declare one or more of the credit agreements to be reckless and suspend them and/or rearrange the remaining repayments
  • Reject your application
  • or, Order that a revised repayment plan be drawn up

In order for a credit agreement to be declared reckless, you must be able to prove that you could not afford the credit at the time it was granted and that the credit provider did not take reasonable steps to determine your financial steps or did not check your affordability before granting you the credit.

If you are undergoing debt counselling, it is noted on your credit record and you will not be able to access further credit, until you are rehabilitated.