Quick Answer
The length of time a person is under debt review can vary, but typically it lasts 5 years. The debt review process involves having a debt counselor restructure your debt into a single payment plan to pay off your debts over time. Legally, debt review cases can last up to 5 years, though they may be completed sooner if the debt is paid off early.
What is debt review?
Debt review, also known as debt counseling, is a debt relief process in South Africa that allows over-indebted consumers to get assistance from a registered debt counselor. The debt counselor will work with the consumer to restructure their debts into a single affordable monthly payment plan.
The goal of debt review is to help the consumer pay off all their debt within 5 years. Under debt review, the consumer makes one monthly payment to the debt counselor, who then distributes payments to each creditor. This structured plan makes debt repayment more manageable.
Entering debt review also protects the consumer from legal action from creditors. Creditors cannot take legal steps to recover debt once the consumer has applied for debt review. This gives the consumer breathing room to get their finances in order.
Key features of debt review:
– Single monthly payment: The consumer makes one payment to the debt counselor each month, instead of multiple payments to different creditors. This consolidated payment is usually lower than the total of original monthly payments.
– Payment distribution: The debt counselor distributes the monthly payment appropriately to each creditor included in the debt review. This ensures creditors are still paid.
– Legal protection: Creditors cannot take legal action like getting a court judgment or repossessing assets once the consumer applies for debt review.
– Debt restructuring: Debts are reworked to be affordable to the consumer based on an assessment of income, expenses and total debt. The repayment period is usually 5 years.
– Debt counseling: By law, the debt counselor must provide counseling on debt, financial planning and budget advice. This helps the consumer improve money management skills.
What debts can be put under debt review?
Most unsecured credit agreements can be included in debt review, such as:
– Credit cards
– Store cards
– Personal loans
– Clothing accounts
– Furniture financing
The key requirements are that the debts must be used for personal, family or household purposes. Business or commercial debts cannot be included.
Secured debt like home loans and car finance agreements can also be included in the debt review process. The debt counselor will negotiate with the lender to restructure payments to an affordable monthly installment.
However, there are some exceptions for secured debt:
– Home loans that are 3 months or more in arrears cannot be included.
– Car finance agreements can only be included if there are no arrears.
So in summary, most unsecured debts and some secured debts like home loans and car finance can be put under debt review. Business or commercial debts do not qualify.
How long does the debt review process take?
The debt review process involves several steps and can take 2-3 months from start to finish:
1. Application: The consumer applies for debt review with a registered debt counselor. Form 16 must be completed with income, expenses and debts. Supporting documents are required.
2. Evaluation: The debt counselor will evaluate if the consumer qualifies for debt review. The consumer must be over-indebted based on affordability assessments.
3. Debt proposal: If approved, the debt counselor prepares a debt restructuring proposal outlining a single monthly payment. This is presented to creditors.
4. Creditor acceptance: Creditors must accept or reject the proposal within 5 business days. Non-response counts as acceptance.
5. Court order: If the proposal is accepted, the debt counselor applies for a court order to make the plan legally binding. This takes about 10 business days.
6. Start repayment: Once the court order is issued, the consumer starts the debt repayment plan under the supervision of the debt counselor.
So in total, expect the process to take around 2-3 months if all goes smoothly. The court order application in particular takes time. But the wait is worth it to gain legal protection from creditors.
How long does debt review last?
Once started, debt review cases typically last 5 years. This 5 year period is the maximum timeframe allowed by the National Credit Act. The debt counselor is obligated to continue facilitating the debt review and disbursing payments to creditors for 5 years.
In some cases, debt review can be completed sooner than 5 years if:
– The consumer pays a lump sum like an inheritance or bonus to eliminate debt faster.
– The consumer makes larger monthly payments by cutting expenses or increasing income.
– Creditors agree to settle for lower payoffs compared to the full amount owing. This compromises debt faster.
But in most standard debt review cases with no special lump sums or settlements, the debt review process lasts the full 5 years. This gives the consumer breathing room to steadily repay debt under the protection of debt review.
It is possible to exit debt review early if all debt is paid in full before 5 years is reached. The consumer can apply for clearance certificate from the court to legally exit debt review. The debt counselor would then stop servicing the account.
So in summary, while 5 years is the standard duration, debt review can end sooner if debt is fully paid off ahead of schedule. But consumers should budget for debt review to last 5 years.
What happens after debt review ends?
Once the 5 year debt review period is over, one of two scenarios will occur:
1. Debt Fully Repaid: If the consumer has made all required payments and satisfied all debts under review, then the debt review process completes successfully. The debt counselor applies for a Section 71 clearance certificate from the court. This confirms the consumer has met all obligations and exits debt review. No more payments are required.
2. Remaining Debts: If any debts were not fully repaid after the 5 year period, these remaining debts become active again. The creditors regain full legal collection rights over the unpaid portion of these debts. They may commence legal action immediately after debt review ends if amounts remain unpaid. The consumer no longer has debt review protection.
Ideally, consumers want to achieve scenario one by fully repaying all debts to receive debt review clearance. This provides a fresh start free from over-indebtedness.
But if any debt remains after 5 years, it is critical for consumers to prepare for creditors taking legal action. Consumers should notify creditors and try to negotiate payment plans or debt settlement on remaining balances. Or consumers may need to consider alternatives like debt administration, sequestration or liquidation. Remaining under debt review indefinitely is not an option.
So in summary, debt review provides 5 years of structured debt repayment and protection from legal creditor action. But any unpaid debts become collectable again immediately after exit, unless fully settled.
Can legal action be taken against a consumer under debt review?
Once a consumer has formally applied for debt review, creditors included in the process may not take any legal action against that consumer for those debts. This provides breathing space for the consumer to repay debts under debt review without threat of legal proceedings.
Specifically, the following legal actions are prohibited against a consumer under debt review:
– Sending letter of demand for payment
– Enforcing a credit agreement in court
– Taking judgment against the consumer
– Repossessing property or assets from the consumer
This protection comes directly from the National Credit Act. It remains in place as long as the consumer meets their debt review obligations and makes monthly payments as scheduled.
However, creditors may still take legal action if:
– The consumer falls 2 months behind debt review payments. This voids protection.
– Business debts or commercial agreements are excluded from debt review. These have no protection.
– The 5 year debt review period expires. Unpaid debts become collectable.
So in summary, creditors cannot take legal action for debts included under debt review, with a few exceptions. This gives the consumer 5 years to repay debt without threat of litigation or repossession. But protection ends if payments lapse or the debt review period expires.
Does debt review affect your credit score?
Entering the debt review process can negatively impact your credit score in a few ways:
– Missed payments: When debt repayments are restructured under debt review, this can show as missed payments on your credit profile if restructure dates don’t align with original payment dates. This damages your score.
– Debts included: Having many debts included in debt review indicates financial distress, which lowers your score.
– Court order: The debt review court order stays on your credit record for years. It flags you are under debt review which lenders see as higher risk.
However, over the 5 year term of debt review, making consistent payments on time does slowly rebuild your creditworthiness. Plus, fully settling all debts under debt review can begin improving your credit rating again.
Here are some tips to protect your credit score during debt review:
– Don’t miss debt review payments, stay up to date.
– Pay more than the minimum payment if possible.
– Get clearance certificate from court once debt review complete.
– Start rebuilding credit slowly with a store card after debt review exit.
– Allow 6-12 months after debt review for score improvement.
So in summary, entering debt review may hurt your credit score at first due to restructuring and court order. But making payments diligently can start to offset these negatives and rebuild your score over time.
Can you get extra credit while under debt review?
Getting additional credit while under debt review is very difficult but not impossible:
– Most credit providers will decline applications once they see you are under debt review, as this indicates you are over-indebted already.
– Any new credit applications must be disclosed to the debt counselor, or else this is considered credit providers ignorance. Not disclosing current debt review is illegal.
– If you do manage to obtain additional credit, it cannot be included in the existing debt review. So you would repay this separately.
– Additional borrowing demonstrates poor judgment and irresponsible use of credit. It works against the goals of debt review and could lead to rejection.
– Your best option is to discuss credit needs with your debt counselor first rather than apply independently. Never hide new credit applications.
– In some cases, your debt counselor may approve very small increases for justifiable purposes like emergency medical expenses. But this is rare.
The only time borrowing significant new credit might be appropriate is if your financial circumstances improve markedly during debt review – for instance a large inheritance or salary increase. The new income could justify additional borrowing capability.
But in most cases, consumers under debt review should avoid taking on new credit agreements. Focus instead on diligently repaying existing debts under the protection of debt review. Debt counselor approval should always be sought for any new credit application.
Can debt review be cancelled?
Yes, a consumer can cancel debt review, but the process is complicated:
– You must be up to date on all debt review payments to date to qualify for cancellation. No arrears.
– Approval must be obtained from the debt counselor to formally terminate debt review.
– Each creditor must consent to the debt review cancellation in writing.
– A court order rescinding the original debt review order must be applied for and granted.
– Once the court order is rescinded, the debt counselor will issue clearance certificates for each applicable credit provider.
– At this point, the consumer exits debt review and original credit agreements are reinstated.
So in essence, the consumer, debt counselor and creditors must all agree to cancel debt review. The court order makes it legally binding.
But cancellation is not recommended in most cases, as it removes legal protections of debt review. Creditors can immediately recommence legal action on unpaid debts.
Cancellation only makes sense if your financial situation has improved significantly, enabling you to repay debts in full quickly without needing debt review protection.
However, cancellation may be the only option if your circumstances deteriorate to the point you cannot meet debt review obligations. Your credit score will suffer further impact.
In summary, cancellation of debt review is possible but requires consent of all parties and a rescinding court order. It removes legal protections so is not recommended in most situations.
Can you buy a house while under debt review?
Buying a house while under debt review is extremely challenging, but there are ways to improve chances:
– You must obtain consent from your debt counselor first before applying for a home loan. Review affordability.
– Apply to lenders specializing in consumers under debt review. They may use different credit criteria.
– Agree to a shorter repayment term like 15 years so installments are manageable.
– Make a large deposit of at least 20-30% to demonstrate commitment.
– Only apply once at least 3 years of debt review payments have been made successfully. Do not apply at the start.
– Ensure your debt review payments are up to date and consistent, with no missed payments.
– Get a co-applicant who is financially stable, employed and not under debt counselling to strengthen the application.
– Be realistic with the purchase price. Only apply for a modest, affordable property.
If you can meet these strict criteria, some lenders may potentially approve a home loan under debt review. But it is a major challenge compared to regular applicants. Work closely with your debt counselor and be prepared for a higher interest rate.
Conclusion
In summary, the standard debt review process lasts 5 years, though may be completed sooner if debts are paid off ahead of schedule. Debt review provides legal protection from creditor litigation during this supervised repayment period.
Consumers should ensure they can make consistent monthly payments over the 5 year term to maximize success. Remaining disciplined and restraining from additional borrowing while under debt review is essential.
While debt review can negatively impact your credit score at first, diligently meeting obligations can gradually rebuild your creditworthiness over time leading to a fresh start. With commitment and perseverance, debt review can empower consumers to systematically repay unsecured debt and regain control of their financial situation.