Debt review: how it works, what it costs and how to get out

A consumer may apply to a debt counsellor to be declared over-indebted (NCA section 86(1)). The counsellor assesses whether you appear over-indebted and whether any of your credit agreements look reckless (section 86(6)). The regulations explain the test: you are over-indebted if your total monthly debt payments exceed your net income minus minimum living expenses (regulation 24(7)(a)).

Debt review applies to credit agreements under the NCA, such as personal loans, credit cards, store accounts, vehicle finance and home loans. It does not apply to an agreement that a credit provider has already started to enforce in court under section 130 (section 86(2)). Look for the counsellor in the NCR register of debt counsellors.

1. Apply to a registered debt counsellor. You submit Form 16 or the same information: identity details, all income, monthly expenses, a list of every debt with the balance and arrears, and a declaration that you will commit to the restructuring. You also consent to a credit bureau check (regulation 24(1)).
2. Notices go out. Within 5 business days the counsellor must deliver Form 17.1 to every credit provider listed and to every registered credit bureau (regulation 24(2); section 86(4)).
3. The counsellor verifies and assesses. The counsellor checks your figures against documents, credit providers or your employer (regulation 24(3)). If a credit provider does not give corrected information within 5 business days of being asked, the counsellor may accept your figures as correct (regulation 24(4)). The decision on over-indebtedness must be made within 30 business days of the application (regulation 24(6)).
4. Outcome. The counsellor either rejects the application, recommends that you and your credit providers agree a voluntary plan, or, if you are over-indebted, issues a proposal to the Magistrate's Court (section 86(7)).
5. Court order or agreement. If you and each credit provider accept a recommended plan, it is filed as a consent order. Otherwise the counsellor refers the matter to the Magistrate's Court (section 86(8)). If the application was rejected, you may apply to the Magistrate's Court directly with its leave (section 86(9)).
6. You pay under the new plan until all obligations are met. You can pay your credit providers directly or through a payment distribution agent registered with the NCR; the counsellor may not collect and distribute your money (see costs below).

The court can order that the instalments are lowered by extending the term, that payments are postponed, a mix of both, a maximum interest rate, or that your obligations are recalculated because of contraventions of the Act. It can also declare a credit agreement reckless (section 86(7)(c)).

The law caps and itemises only part of the costs. What the regulations say:

• Application fee: a debt counsellor may not charge a consumer more than R50 when applying for debt restructuring. Schedule 2 says this figure is increased every year in line with inflation, so ask the counsellor for the current amount and for a written breakdown (Schedule 2, item 2 and item 5).
• Credit providers do not pay: a counsellor may not require or accept a fee from a credit provider for the application (section 86(3)(b)).
• Collecting your money: a debt counsellor must not collect and distribute your payments (regulation 11). If you use a payment distribution agent registered with the NCR, the agent collects and distributes them.
• Payment distribution agent fees, if you use one (including VAT): R5 for each payment of R100 to R200 distributed per credit agreement, R10 for each payment of R201 to R500, R15 for each payment above R500, and R3 for any additional monthly statement you ask for.

The counsellor's fee for drawing up and managing the plan is not set out in these schedules, and we found no figure in the law. The NCR publishes separate fee guidelines for debt counsellors and says all fees must be disclosed to you in writing, so ask for the amount and the monthly total in writing before you sign. The NCR takes complaints about debt counsellors.

• No new credit: from the day you apply you must not incur further charges on a credit facility or take on a new credit agreement, other than a consolidation agreement. This lasts until the review ends in one of the ways listed in section 88(1), for example when all re-arranged obligations are fulfilled (section 88(1)). A new agreement made while the re-arrangement still stands can be declared reckless (section 88(4)).
• Credit providers cannot enforce by litigation: once a credit provider has notice of the application, it may not exercise or enforce its rights under that agreement by litigation or other judicial process until you are in default and one of the events in section 88(1) has occurred, or you default on the re-arranged plan (section 88(3)).
• Termination by a credit provider: if you are in default, the credit provider may give notice to terminate the review at least 60 business days after you applied (section 86(10)(a)). It cannot do so once the application has been filed in a court order or with the Tribunal (section 86(10)(b)). If it then enforces the debt, the court may order the review to resume on conditions (section 86(11)).

The law does not fix one maximum duration for all reviews: the re-arrangement ordered by the court sets the term for each agreement.

When the review ends, you need a clearance certificate so that bureaux can update your record. A debt counsellor must issue it within 7 days after you have satisfied all obligations under every re-arranged credit agreement. For home loans and certain long-term agreements, the counsellor must also issue it once you show you can meet future payments, that there are no arrears, and that everything else is settled (section 71(1); the certificate is Form 19 under regulation 27).

If a counsellor refuses or fails to issue the certificate, you can apply to the Tribunal (section 71(3)). Credit providers also have to report settlements to bureaux within 7 days, and a bureau must then remove the adverse listing within 7 days after receipt (section 71A(1) and (2)). While the review is running, the bureaux hold the debt-review flag, because the counsellor must notify every registered credit bureau when you apply (section 86(4)(b)(ii)).

• You cannot take new credit until the review ends, except a consolidation agreement (section 88(1)).
• Lower instalments come from extending the term (section 86(7)(c)(ii)), so you may pay interest for longer.
• If you default on the plan, credit providers can resume enforcement (section 88(3)(b)(ii)).
• You pay the application fee and the counsellor's and agent's charges, so lower instalments may not mean lower overall cost.
• The review deals with credit agreements; debts that are not credit agreements are not re-arranged by the court order, so ask your counsellor which of your debts it covers.

• Voluntary re-arrangement: if you are not over-indebted but struggle to keep up, the counsellor may recommend that you and your credit providers agree a plan (section 86(7)(b)). If all accept it, it is recorded as a consent order (section 86(8)(a)).
• Debt intervention through the NCR: section 86A of the Act describes a separate route through the NCR for consumers with small unsecured debts. We could not confirm that it is in operation, so ask the NCR about its status and eligibility before relying on it.
• Consolidation: one new agreement that settles several old ones. The Act allows it during debt review (section 88(1)), but you need a credit provider willing to lend. Read our guide to debt consolidation loans in South Africa and check the full cost first.
• Court options for severe cases: administration orders and sequestration are separate court procedures with serious consequences. Speak to an attorney or Legal Aid South Africa before choosing either.

If you are already under review and wondering what credit is possible, see loans under debt review.