If you can prove that you are able to start making regular payments, you can request to end your debt review.
When Joseph Masemola’s debt began to spin out of control in 2010, he applied for debt review via a debt counsellor. Since then, he has managed to settle and clear all his debt with the exception of a Nedbank personal loan and a Nedbank home loan.
The personal loan will also be settled and cleared by the end of November, leaving Joseph with just his home loan. He was wondering whether he could exit the debt review process and pay his home loan instalments directly to Nedbank and not via a debt counsellor.
Rescission of debt review
He was advised by his bank to apply, via his lawyer, for a rescission of debt review court order and also to apply for his free credit reports, as per the National Credit Act. “On obtaining my credit report from three different credit bureaus – Transunion, Compuscan and Experian – I was pleased to see that the debt review process has protected me from being blacklisted and that there are no judgments against me,” Joseph says.
His debt counsellor has informed him that once the rescission of his debt order re-arrangement order is passed, it could take less than a month to remove him from the debt review process.
Anton Thomas, the head of debt counselling operations at Nedbank, says the bank’s home loans division was able to offer Joseph restructured repayment options to choose from, subject to an affordability assessment, when he gets out of debt review. This is subject to the court order for debt review being rescinded.
The bank also confirmed that no legal action will be instituted against Joseph provided he enters into a restructured agreement and honours the new repayment agreement entered into with the bank.
Solutions for over-indebted home owners
“For most people in South Africa, their home is their biggest investment so banks have come up with a wide range of options for homeowners to consider when in financial difficulty regarding their home loan repayments,” Thomas says.
In the past, if you were not able to repay your home loan due to financial difficulty, one of the few solutions available was to simply ‘give the house back’ to the bank that financed it. This process, known as foreclosure or repossession, usually results in an unfortunate financial loss – both for you and the bank. If the bank repossesses your home you invariably end up with a bad credit record, which makes it difficult for you to get back on your feet financially.
To help affected clients, Nedbank has come up with a payment solutions website that provides you with options outlining various scenarios regarding any impact, benefits or limitations that you need to consider when you have fallen into arrears on your home loan.
Thomas says since 2009, Nedbank has restructured more than 16 000 home loans while the Nedbank Assisted Sales programme has helped a further 4 000 clients avoid foreclosure on their homes. The programme helps you to obtain an appropriate valuation of your home, appoint estate agents to handle the sale and limit the burden of any residual shortfall. The other big banks – Absa, Standard Bank and First National Bank – all have similar programmes in place.
What happens when you default on your home loan
If a bank chooses to follow a legal route because you have defaulted on your home loan, the process is as follows:
1. The bank will contact you telephonically or in person where possible, and will also send you a written notice that payment is required. Under the National Credit Act, a credit provider must send you a section 129 notice to inform you that you are in default before it can proceed with legal action against you. The section 129 notice must also inform you of your right to refer the credit agreement to a debt counsellor, an alternate dispute resolution agent, the credit ombud or a consumer court in an attempt to resolve any dispute or agree to a plan to settle your debt.
2. You will be issued with a letter of demand.
3. The bank will issue you with a court summons.
4. Default judgment is taken, after which the matter is pursued by the Sheriff of the designated Court.
How do you know if you are over-indebted?
• You borrow money to pay other debts.
• You use your credit card and/or overdraft to buy food and other necessities.
• You skip payments on some accounts in order to pay other accounts.
• You receive letters of demand from lawyers and credit providers.
• You have judgments against you.
The debt review process
You are considered to be over-indebted if your expenses or your debt repayments exceed your income. If this is the case, you are eligible to apply for debt review under the National Credit Act. Once you apply for debt review, you will not be able to access any further credit until you have exited the debt review process. You will need to apply to a registered debt counsellor for debt review. The counsellor will then draw up an affordable budget for you and contact your credit providers to negotiate a restructured repayment plan. Once the repayment plan is in place, you make one monthly debt repayment to a payment distribution agency, which then makes the required payments to your different credit providers. Once you have repaid all your debt, your debt counsellor has to issue you with a debt clearance certificate.
Ian Wason, the chief executive of DebtBusters, says that often, by the time clients apply for debt review or debt counselling, they are spending 78% of their net monthly income on their debt repayments when they need approximately 70% of their net income for their living expenses. “After we have assessed their finances, and drawn up a budget and a new repayment plan, we are able to reduce their debt repayments to an average of 30%,” he says.