Struggling to Repay Debt? Act Pre-Emptively for Best Outcome

If you are having trouble making debt repayments, there are legal avenues open to you to alleviate your financial burden while still enjoying basic consumer protections. It’s important, however, to confront the problem and take action immediately instead of ignoring it in the hope that it will go away. 

Ideally, you need to act before your creditor does. Nerosha Maseti, Lead Ombud at the Banking and Credit Division of the National Finance Ombud, says: “Consumers should not wait until legal processes start before seeking help. There are structured legal options that can reduce costs and limit long-term financial damage. Acting early almost always leads to better outcomes than waiting for repossession or foreclosure.”

Pre-emptive actions

• Check your credit life cover: Under certain circumstances – for instance, if you have been retrenched or if you have suffered a loss of income due to disability – you may be able to claim against a credit life insurance policy linked to the credit agreement. The policy, if there is one, will have been instituted at the inception of the agreement and the premiums will have been included in your repayments. For example, you may have been compelled to sign up for a credit life policy when taking out vehicle finance on a new car.

• Renegotiate your loan: Banks and other credit providers are usually accommodating in allowing you to restructure a credit agreement if you approach them honestly and openly. According to the Nedbank website, options open to you may be to extend the loan term to reduce your monthly instalment; spread any arrears over the term of your contract, or even freeze your instalments for a short period.

• Voluntarily terminate the agreement: Under Section 127 of the National Credit Act, you can terminate certain agreements. “Section 127 allows a consumer to terminate certain credit agreements at any time by giving written notice and returning the goods. This right exists even if the consumer is not yet in default,” Maseti says. She says this option generally applies to instalment sale agreements on vehicles, furniture and appliances, secured loans and lease agreements, where the credit provider retains ownership of the goods. It does not apply to mortgage bonds, unsecured loans, credit cards or overdraft facilities. “Once the goods are returned, the credit provider must have them evaluated and communicate the estimated value to the consumer. The goods must then be sold on auction. If a shortfall remains, the consumer remains liable for that amount. If there is a surplus, it must be refunded to the consumer,” Maseti says.

• Consider a private sale: This is when you privately sell the asset in question and use the proceeds to settle the outstanding credit balance. It would typically apply to a vehicle or residential property. “For vehicles and other movable assets under instalment sale agreements, a private sale may achieve a higher price than an auction, thus reducing the extent of any shortfall. However, the consumer must secure a willing buyer, interest continues to accrue until settlement, and the credit provider must formally approve the settlement amount,” Maseti says. “For mortgaged properties, a private sale often offers a better chance of achieving a market-related value than a forced sale in execution. It allows the homeowner to remain involved in the process and negotiate payment arrangements for any shortfall.” The bank may even have a special programme in place to help distressed bondholders sell their properties. 

When the creditor acts before you do

Once a creditor sends debt collectors after you, issues you with a demand letter, or proceeds with a summons, your options narrow considerably and costs increase rapidly. Under these circumstances, you need to know your rights under the law.

René Moonsamy, chairperson of the National Debt Counselling Association, says that, among other things, the National Credit Act regulates debt collection practices, stipulating that consumers must be treated fairly and without harassment, informed about what they owe, and protected from unlawful fees.

“Consumers who default on a credit agreement must receive a formal (Section 129) notice advising them that they have defaulted and the options to remedy the situation. These can include paying the arrears, renegotiating repayment terms or entering debt counselling,” she says.

“Credit providers generally need a court order to repossess property, attach assets or enforce judgments,” Moonsamy says, adding that if you enter debt counselling before enforcement begins, they must pause legal action.