Ask the Expert Reckless Lending

28 November 2012

If a debt counsellor suspects that you were given credit recklessly because you could not afford it, he or she can ask a court to decide if this was indeed the case and if so to suspend the agreement or set it aside.

Once your repayment plan is agreed, you will make payments to a distribution agency registered with the NCR and it will distribute what you pay to your creditors. The agency will be paid by way of a fee from the creditors.

Tony Richards, the interim chairman of the Debt Counsellors’ Association of South Africa, says debt counsellors will restructure your debt repayments but will not renegotiate the interest you are charged on the outstanding debt unless you are so deeply in debt that you will not be able to repay it within a reasonable period of time.

Richards says debt counselling is concerned with the individual, and the repayment plan must focus on his or her needs. For example, some people are willing to sell their homes or cars to repay their debt, but others may, for example, want to keep their homes to remain in an area for their children’s schooling and be unable to rent in the same area for less.

My 24 year old unmarried pregnant daughter is in serious debt: she has two cars financed by Wesbank; R18 000 owing on her FNB credit card; R5000 with Wesbank for a personal loan; five different cell phone contracts; R2500 monthly rent; R6000 owing to Edgars and a R10 000 RCS loan.

Your advice please. If I pay these off for her, how do I ensure that she does not get any more credit? Should she declare insolvency?

You did not tell me what your daughter’s income is, but by looking at the amount of short-term debt she has, it is not difficult to assume that her expenses exceed her income by a wide margin.
Babies are expensive, so things are not going to get easier for her. A rough estimate would put the monthly repayments at about R2000. Are you prepared to pay this off for her for the next three to five years? If you do, she will be free to go and get more debt. In my opinion I think she needs to spend some time at the school of hard knocks.

Having five cell contracts tells me that she is just plain irresponsible.
Bailing her out is not going to change her habits. If she can’t afford the repayments herself, then she is technically insolvent. If she declares insolvency, all her assets will be sold off to pay her creditors and she will be barred from getting finance for the next five years. I am tempted to say, let her face the consequences. However she will have a child soon and it will be difficult without a car.
The good news is in terms of the new National Credit Act she does have some relief. She will be required to go to an accredited debt counsellor who will renegotiate her debt with her creditors into more affordable monthly amounts. Provided of course that she is in fact over-indebted as opposed to a bad money manager.

The debt counsellor will then go to her creditors, renegotiate a payment and get a consent order from the courts. If the creditor does not consent, the counsellor can apply for a court order. While a person is in the programme, they may not take on any more credit.

The debt counsellor will receive reports from the debt counselling organisation, keeping them informed as to the status of the client. If things are stabilised, the counsellor may release them from the supervision, which means they are free to apply for more credit.

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