PRESCRIPTION

What is Prescription?

It means that when debts are old, you are no longer legally obliged to pay.

 

 

This is important, as we need the money to be distributed to legally collectable debts only, it’s one of the things we verify in the Debt Management Plan.

When is a debt too old to be legally collectable?

The Prescription Act 68 of 1969 regulates prescription. The Act is comprehensive, but in essence, most debt is deemed to have prescribed if;-

It has been three years since your last payment, and in that time you have not acknowledged the debt in any way, or been summoned in respect of the debt. Are there debts that do not prescribe? Yes, generally speaking debts such as municipal debt, mortgage debt (home loans), TV licence debt and taxes do not prescribe.

Which debts could become too old to be legally collectable? Most of the debts currently being “chased” by debt collectors and credit providers – such as clothing accounts, gym memberships and personal loans – do prescribe after 3 (three) years of inactivity.

What happens if a debt has prescribed?

You do not have to make any payments to creditors in respect of prescribed debt; After finalisation of the process, the balances of unpaid debt must be written off by creditors; Creditors may no longer demand payment from you for prescribed debt; If blacklisted for prescribed debt, the listing must be removed.

INTEREST

Can credit providers charge what they want?

No. As a South African consumer, you have the right to regulated fees and interest on all credit agreements.

The National Credit Act regulates interest rates, initiation fees and service fees by:-

Specifying maximum interest rates that credit providers may charge you; specifying the maximum initiation fee that credit providers specifying the maximum fees that credit providers are allowed to charge and how often the fees can be recovered.

What is the maximum interest and fees that I may be charged?

It depends on the type of credit agreement that you have entered into:

Mortgages/Bonds agreements (REPO rate x 2.2) + 5%

Credit Facilities (Credit cards, Store cards etc.) (REPO rate x 2.2) + 10%

Unsecured Credit Facilities (e.g. Personal loans) (REPO rate x 2.2) + 20%

Incidental Credit agreements
(Overdue bills from doctors, Eskom, Municipalities, etc.) 2% per month

Small & Medium Business Loans (REPO rate x 2.2) + 20%

Low income housing loans  (REPO rate x 2.2) + 20%

Short Term Loans (i.e. Loans of up to 6 months of no more than R8 000)  – 5% per month

Any other types of loans not covered above (REPO rate x 2.2) + 10%

Can interest be charged on any of my overdue credit agreements?

Yes, interest may be charged, as long as it is in line with the provisions of the National Credit Act. The Credit provider must also inform you upfront – usually this is stipulated in your loan agreement.

What rights or protection do I have against unlawful interest being charged on any of my credit agreements?

The National Credit Act specifies the maximum interest rates that credit providers may charge you and prohibits penalty fees when you cancel a contract, although a cancellation fee may apply. Should credit providers not comply with the provisions relating to maximum rates and fees stipulated in the Act, a Tribunal may declare the agreement null and void and all payments made by you will have to be refunded, together with the prescribed interest of 15.5% per annum.

Can credit providers continue to charge interest and fees to make me pay forever?

No. The National Credit Act stipulates that once you are in default, the sum of the following may never exceed the outstanding capital balance owed at the time of default:-

service fees; interest; cost of credit insurance; default administration charges; and collection costs.

In other words, credit providers have to write off the balance or refund you when the sum of interest, fees, charges and costs  outstanding debt at time of default.

SEQUESTRATION

What is Sequestration?

Sequestration is a process intended for consumers so over-indebted that no reasonable proposal can be made to creditors. Sequestration is a high court application that is handled by an attorney. A Trustee is appointed by the Master of the High Court and assets sold in order for the proceeds to be distributed to creditors. In some cases, Sequestration may be the only method to relieve the burden of debt.

What are the benefits of Sequestration?

  • Creditors must communicate with us, not you, once the sequestration process has started;
  • Once notified, you do not have to make any further payments to creditors;
  • Legal action is prevented and no attachment can take place once a Notice of Surrender has been published;
  • Your salary cannot be attached (“EAO” – emoluments attachment order / “garnishee” order) and all existing orders and deductions for debt must be cancelled;
  • After finalisation of the process, the balances of unpaid debt must be written off by creditors;
  • Creditors may no longer demand payment from you;
  • You may apply to the Court for a Rehabilitation Order, 3 (three) years after date of sequestration, restoring your financial standing.

Will I lose my assets if I am sequestrated?

Yes, a Trustee will be appointed by the Master of the High Court and your assets will be sold in order for the proceeds to be distributed to your creditors.

Will I be liable for any shortfall if my assets do not realize enough to cover the claims by my creditors?

No, after finalisation of the process, the balances of unpaid debt must be written off by creditors.

Will it not be a better option for a creditor to obtain judgment and sell my assets?

This is not the best option for the following reasons:-

  • a judgement is enforceable for 30 years;
  • you will be liable for the shortfall between the value of the asset and the outstanding debt.

Should I keep paying my creditors after applying for sequestration?

No, once notified, you do not have to make any further payments to creditors.

RECKLESS LENDING

What is Reckless Lending?
Credit was lent recklessly if:
  • The credit provider did not do a proper assessment to ensure that you could afford the loan,
  • The credit provider granted you the loan despite you not having been being able to afford the loan, or
  • You did not understand your rights and obligations in the agreement, as well as the costs involved in taking the loan.

What happens if an agreement is found to be reckless?

  • If an agreement is found to be reckless, the Court/Tribunal will:
    • make an order setting aside all or part of the consumer’s rights and obligations;
    • suspend the force and effect of that credit agreement;
  • Where the Court/Tribunal makes the above orders:-
    • you do not have to make any further payment to the responsible credit provider;
    • the responsible credit provider may not demand any payment from you;
    • no interest, fee or other charge under the agreement may be charged to you.