Debt review, the good, the bad, the ugly and the Government.

The debt review or debt counselling, is a debt solution that offers a form of protection against creditor  taking action or repossessing goods for consumers who are over indebted and struggling to manage their finances. The debt review process is being abused by those who take advantage of the consumer’s lack of knowledge and their actions are very harmful to the financial services sector as a whole.

The debt review or debt counselling, is a debt solution that offers a form of protection against creditor  taking action or repossessing goods for consumers who are over indebted and struggling to manage their finances. The debt review process is being abused by those who take advantage of the consumer’s lack of knowledge and their actions are very harmful to the financial services sector as a whole.

To start the debt review process you must approach a debt counselor. Once your debt counselor has determined whether you are over-indebted or debt stressed, he or she is obliged to follow a certain procedure as prescribed in the National Credit Act. The procedure will depend on the debt counselors determination.

The good.

The debt review or debt counselling, is a debt solution that offers a form of protection against creditor  taking action or repossessing goods for consumers who are over indebted and struggling to manage their finances. When you apply for debt counselling, you will have to fill out an application form, called Form 16, which you submit, together with all your credit agreements, to a debt counselor.

The first thing the debt counselor does is assess whether you are over-indebted or debt stressed, and whether or not your creditors were reckless in granting you credit.

The debt counselor has 30 business days, from the date of your application, in which to make this determination.

All debt review cases must either go to the Magistrate’s Courts or the National Credit Tribunal, in order to be rubber stamped, as per the National Credit Act. However, there is the possibility that client may need to be present in court.

The bad.

Bear in mind that you can only take advantage of this process if you have a regular income to develop a reasonable repayment plan.

– An application fee;  – A rejection fee (to weed out frivolous applications);  – A restructuring fee;  – A small monthly fee;  – A legal fee that is needed for the consent order in the second month; and – A fee if you withdraw from the process later on.

And remember that there is a rejection fee of R300 plus VAT if the debt counselor decides that you can manage your debt, so you really must be battling.

The ugly.

One of the harmful practices by debt counselor is to sign-up client under false pretenses and place them under debt review without taking the process to court because they will make money from consumer from rejection fees. The mondus-operandi they use is to tell prospective clients that they will help them get consolidation loans if they sign-up for debt review.

Most of the clients subjected to this dubious debt review sign-up practices don’t need debt counselling because they only in area for very small amount sometimes in the region of five thousand (R5000) while their gross salaries are very high, but because consumers don’t know their rights they get taken for a ride.

Some consumers are put under debt review even when their accounts had been written off because debt counselors will make money by issuing clearance certificates.

The government.

The government is looking at way to prevent over indebtedness beyond regulation. Some of the proposal is to force creditors to cancel debt. This has will probably run into difficulties as creditors who provided debtors with unsecured loans in good faith will probably institute legal action against such plans. Consumers requested credit and providers provided such credit in good faith. The other implication of this government proposals is the mis-communication that make debtors think that they that they don’t have to honor their debt obligations. If the government forces creditors to cancelled certain  consumer debts, many people would find it very difficult to access credit as creditor will start lending only to people with perfect credit scores.

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