Debt forgiveness, is this a thing?

Could the National Credit Amendment Bill (“Bill”) be a “lifeline” for debtors in South Africa? The National Council of Provinces passed the Bill in March this year which has now been sent to the president for attestation. This legal insight focuses on the substitution of certain sections in the National Credit Act 34 of 2005 by the Bill.

The current position in the National Credit Act.

In so far as debt-relief is concerned, the current legislative position in South Africa in terms of the National Credit Act 34 of 2005, allows for a consumer under a credit agreement to make an application to a court to be declared over-indebted (i.e. being unable to meet your financial obligations in a timely manner). If the application is granted, the consumer will be placed under debt review, otherwise known as debt counselling. This is a process whereby a debt counsellor assesses a client’s outstanding debt and implements a restructured debt repayment plan.

The National Credit Amendment Bill.

This Bill introduces the concept of “debt-intervention”; this refers to a process that allows for a court, through an application, to order that an over-indebted consumer’s debt be extinguished. The Bill aims to provide relief to over-indebted consumers in South Africa who have no other means of extricating themselves from that position by way of suspending their debts in full or part for a period not exceeding 24 months, this provides the consumer with the chance to recover financially, subject to conditions provided for in the Bill.

The good news is that, if you as a consumer “tick” the undermentioned “boxes”, you qualify to bring an application for debt intervention under the substituted and amended section to be introduced by the Bill if—

  • you have an unsecured debt not exceeding R50 000.00.
  • the unsecured debt was accrued through unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities only.
  • you have not earned more than R7,500 a month over the preceding six months.

Should there be no change in your financial situation after the 24 months suspension, the court is in a position to declare all or part of your financial obligations extinguished.

There is always a catch.

The effect of a consumer bringing an application for debt intervention before a court is that once the order is granted, the consumer may not enter into any further credit agreements for the period of the suspension, failing which, the provisions related to the debt intervention will never apply to that agreement.

On the downside, where a court has ordered that the debt that underlies the unsecured credit agreement in question is extinguished, the credit provider may not exercise or enforce by litigation or other judicial process any right under that credit agreement or arising from that order, in respect of the portion of the debt that the order applies to (whether in part or full).

This serves to benefit the low income earner demographic, being the income bracket in which the majority of South Africans fall. The unfortunate reality is that such persons are already struggling to make ends meet and rely largely on credit in their day to day lives.

Manopi Makwela – Associate