No easy way out of debt review, even if your fortunes change

Nothing stops you from paying extra to your creditors to exit earlier

04 September 2019 - 10:05
By Angelique Ardé
No court has jurisdiction to order a release from debt review. Picture: 123RF/RAWPIXEL
No court has jurisdiction to order a release from debt review. Picture: 123RF/RAWPIXEL

Not even a high court has the power to release you early from debt review merely because you are no longer overindebted. 

This has been confirmed by a full bench of the Gauteng High Court in a judgment written by judge Roland Sutherland. 

The judgment stems from an application by two consumers, both clients of debt counsellor Neil Roets, who wanted to be released from debt review because their financial positions had improved to the extent that they could pay their creditors according to the original terms of their credit agreements but could not pay off all of their debts in full.

When you are in debt review it is noted on your credit report and this means that you can’t incur more credit until you’ve been issued with a clearance certificate by your debt counsellor.  

Without the debts being paid off, Roets was not in a position to issue either of his clients with clearance certificates, and they contended that they were trapped in debt review. They turned to the high court asking for orders declaring that they were no longer subject to debt review.

The court had to decide if it had the power to do so, given that judgments in the Western Cape, KwaZulu-Natal and Limpopo — which stated that the high court did not have the jurisdiction to release a consumer from debt review — conflicted with ones issued in Gauteng. 

Only one of the two applicants had a court order placing him in debt review. In May 2016, Roets had filed an application for the rearrangement of the debts of the other consumer but the application has not been heard. However, both consumers’ credit reports indicate that they are in debt review. 

The judgment says both consumers’ complaints — that they are “trapped” in debt review — implied that they are being treated unfairly and ought to be allowed “to escape the strictures imposed on them”. 

The 26-page judgment says that while consumers in debt review can’t incur more credit, they also can’t be sued by their creditors while in debt review (provided that they honour the debt review order). This highlights the trade-off that you make when you go into debt review. 

So, how can you exit debt review?

Sutherland says that in the case of the consumer whose debt review application “is apparently gathering dust at the office of the court”, Roets can resolve his predicament by presenting his matter to the magistrate together with additional [and new] information about his improved fortunes. 

In terms of the National Credit Act, the magistrate “must” conduct a hearing to decide whether or not to grant the debt-review order. In doing so, the magistrate must consider the information before the court, including the consumer’s financial means, prospects and obligations. 

On the facts alleged by the consumer, the magistrate must logically reject the proposal because the consumer is allegedly not overindebted, the judge says. 

In the case of the consumer with a debt review court order, the position is different, the judgment says. 

Where a court order has been made, the consumer is bound to debt review until he has paid all his debts as per the debt rearrangement order.

The NCA says you must either pay off all your debts in full, or pay off all your short-term debts plus catch up on the arrears on your home loan or any other long-term loans and revert to paying the original instalments.

If your financial situation improves while you’re in debt review, nothing prevents you from paying extra to your creditors in order to exit earlier than the terms stipulated in the debt review order.

But if you have not extinguished your overindebtedness, you have no right to exit debt review, and “this seems to be a policy choice by the legislature”, the judgment says.

Assuming you have extinguished your overindebtedness according to the NCA and your debt counsellor still refuses to issue you with a clearance certificate, the act says you must lodge a complaint with the National Consumer Tribunal. 

“It must be emphasised that the tribunal does not deal with the rescission of the magistrate’s order — the order is undisturbed … To belabour the critical point: no court has jurisdiction to order a release,” the judgment says. 

On the role of the courts in debt review matters, the judgment says the only power created for any court, including the high court, is to set in motion a debt review process or to order a rearrangement of a debtor’s debts. “The power does not include a power to order an exit from debt review.”

The judgment also says the role of the debt counsellor is as that of a “facilitator, not a decision maker”.

“Debt counsellors, at the height of their powers, adopt a tentative view that it ‘seems’ that the consumer is overindebted, and present to a magistrate a proposal to rearrange the [consumer’s debt] obligations on that premise. The magistrate, in turn, has to conduct a hearing to make decisions … The magistrate is empowered to make orders if the criteria are satisfied.”

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