What the debt relief bill really means

Recently President Ramaphosa signed the National Credit Amendment Act (NCA) into law which included the so-called Debt Relief Bill.  This has generated an avalanche of headlines claiming that consumers’ debt is to be expunged. These are dangerous headlines and any over-extended consumers need to know the facts before thinking their debt woes are over.

Listen to Maya and Mapalo Makhu discussing this and other topics on the My Money, My Lifestyle podcast.

This is a debt review process

The suggested debt intervention is that consumers earning less than R7 500 a month and with debts of less than R50 000 will be allowed to access debt review at no cost, which will be provided by the National Credit Regulator (NCR). Low-income individuals who are deemed to be indebted will have their debts restructured so they can repay them over 60 months. Where appropriate, the interest rates will be reduced, even to zero in some cases. During the debt review process the individual may not access any further credit and this will be flagged on their credit record. The consumer will also have to undergo financial education so that they learn to better manage their finances.

Existing judgements are not included

According to the NCR if legal action has commenced on a credit agreement, that credit agreement will be excluded from debt intervention. This amendment will not stop debt collectors acting on judgements taken against consumers.

Debt will only be extinguished in certain circumstances

Only in cases where the individual has no income or if their income is not enough to enable their debt review to be solved within five years will their agreements be suspended for 12 months, which can be extended for a further 12 months. If they have still not found work after 24 months, then the debt can be extinguished. If the debt is extinguished, this information will reflect on the credit bureau for a further 12 months. This means those consumers will remain out of the credit environment for three years. This will also only relate to credit agreements and not other debts such as municipal bills.

The debt intervention will be flagged on your credit record

As with debt review, a consumer who applies for debt intervention will have their status flagged on their credit record and will not be able to access credit until they have settled their debts. If the debt is expunged it will reflect on their credit record for 12 months after the debt has been expunged. This will negatively affect one’s credit record and chance of obtaining more credit.

This process will not be available for some time

The NCR is yet to put the systems in place to provide the debt intervention service. It is estimated that this is likely to take another year. In the meantime, consumers need to continue to meet their repayments or make arrangements with their credit providers. If they default and a judgement is brought against them before they can access the debt intervention measures, those debts will not qualify for debt intervention.

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