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Who Qualifies for Debt Review?

As per the National Credit Act (NCA), a consumer may apply for debt review only if they are what it terms: ‘over-indebted’.

But what does that mean exactly?

Over-indebted: The Legal Definition

Well, according to NCA Section 79(1), a consumer is officially over-indebted when, after considering their financial obligations and their income, it is determined that they are or will be unable to satisfy all their obligations as they become due and payable.

So, to put it plainly, if a person’s income does not cover both their expenses each month and their debt obligations, then they would be technically over-indebted.

Being over-indebted they would then officially be able to qualify for debt review.

Income – Expenses + Debt Repayments = (nothing left over): Qualifies

Or

Income – Expenses + Debt Repayments = (something left over): Does Not Qualify

To figure out if a consumer actually qualifies for debt restructuring an NCR registered Debt Counsellor will perform what is known as a debt review*.

Part of that debt review would include asking credit providers for up to date info and going through the consumer’s budget and seeing what can be adjusted. Sometimes it involves adding many things to a person’s budget that are missing and have been cut in the past, but should realistically be there. This could be things like saving toward big annual expenses such as car services or tyre replacement. It could be missing insurances that are actually required in terms of people’s contracts.

Normally, after seeing that a person is over-indebted, a Debt Counsellor will help them make budget adjustment and will produce a detailed repayment plan to be sent to credit providers and the court.

However, it is important to state that not all consumers who are struggling to pay their debts actually qualify for debt restructuring.

Some consumers may simply need financial advice or a revised spending plan. Sometimes it is just a case of needing to make some big changes to how we use and spend money each month.

‘Sometimes it is just a case of needing to make some big changes to how we use and spend money each month’

It can be hard to realise but with the help of a professional Debt Counsellor, there might be ways to make some changes and get things back on track without involving the courts.

*Sometimes people call the whole process from start to finish a debt review, but it’s actually just the part right up front. The rest is actually advice or debt counselling, or debt restructuring through the courts.

Evaluation Criteria for Over-Indebtedness:

A registered Debt Counsellor must assess the consumer’s financial profile, including:

    • Monthly net income
    • Monthly expenses (based on reasonable living costs)
    • Current credit obligations (instalments, interest rates, arrears)
    • Whether minimum contractual debt repayments can be maintained
    • If any accounts are now due
    • Which accounts have existing legal action

This is why a Debt Counsellor will often ask you to bring along your salary slips, recent bank statements and will draw a credit report showing all your current debts. They will also ask you to help them develop a picture of your household budget.

Making It Official At Court

The debt review process exists to assist over-indebted consumers by restructuring their debts into a manageable repayment plan through the courts.

Almost all credit providers cooperate with the process, and most will make amazing concessions to help speed up payments and reduce pressure on their clients. Most will drop all account fees and service charges. They might also be willing to reduce interest to prime or even to zero % in many cases.

But even if the credit providers don’t really want to help, they are forced to by the law and the courts.

All debt review matters go to court (or the National Consumer Tribunal) and are turned into a court order. This ensures all parties stick to the arrangement and do not later try change their tune.

Examples

Example 1: Over-Indebted Consumer — Lerato

Lerato earns R12,000 per month after deductions.
Her monthly living expenses (rent, groceries, transport, etc.) total R8,000.
Her debt repayments (personal loan, credit card, clothing account, and a car loan) total R6,200.

Shortfall: R2,200 monthly.
Lerato is already skipping payments and has now received a scary Section 129 notice. Based on this assessment, she cannot meet her obligations in a sustainable manner. Lerato would be considered over-indebted and would qualify for debt review under the NCA.

Example 2: Not Over-Indebted — Sipho

Sipho earns R22,000 per month after deductions.
His monthly expenses are R14,000.
His debt repayments (vehicle finance, credit card, and a home loan) total R9,500.

Shortfall: R1350 monthly.

[but wait]

At first Sipho seems over-indebted but after closely looking at his spending it is clear he can make some changes that will help reduce spending. By cutting out an unneeded subscription service, reducing spending on entertainment and after realising he was overpaying for some budget items, his monthly expenses can actually be adjusted down to only R12 000.

Surplus: R500 monthly.

Although Sipho feels financially stretched sometimes and occasionally used his credit card for shopping, with some changes he is able to meet all contractual debt obligations and not fall behind. He is not over-indebted. 

A Debt Counsellor would not recommend debt review. Instead, Sipho has benefited from an outside view of his situation and some budget and lifestyle adjustments.

Want to know if you are Over-Indebted?

Debt review is a legal remedy designed for consumers who really cannot meet their debt obligations.

It is not a way to pay less on your debts or some sort of debt repayment savings plan. A proper assessment by an NCR registered Debt Counsellor is essential to determine whether a consumer is over-indebted and therefore eligible for debt review.

‘A proper assessment by an NCR registered Debt Counsellor is essential to determine whether a consumer is over-indebted’

Without meeting the legal threshold of being ‘over-indebted’ as set out in the National Credit Act, an application for debt review cannot proceed to court for debt restructuring.

If you are taking strain and think that you might qualify for debt restructuring then ask an NCR registered Debt Counsellor for a debt review. You might be able to enter the process or maybe you won’t but either way you will get great budgeting and financial advice that will help you make ends meet each month.