Can You Really Write Off Debt?

Are you overwhelmed by debt, struggling to make ends meet every month? Perhaps the idea of possibly writing off your debt has flickered through your mind as a glimmer of hope.

In South Africa, there isn’t a legal provision that allows for the outright “writing off” of debt in the sense that it can be completely eradicated without payment or settlement. However, there are circumstances in which your debt can be dismissed. This can occur when your debt becomes prescribed, or if it is determined that funds were recklessly lent to you by your creditor.

Instead, there are various legal and regulated mechanisms in South Africa designed to assist over-indebted consumers in managing debt and offering financial relief.

So what does “writing off” debt entail, and is it a practical solution?

Prescribed Debt: A Risky Relief

Prescribed debt stands out as a risky way to get debt relief.

After debt is prescribed, creditors lose their legal grounds to claim it. This prescription occurs if creditors make no collection attempts or issue no summons over 3 years. However, prescription doesn’t instantaneously erase the debt from your credit report.

Adverse listings reflecting non-payment (defaults or judgments) usually linger on credit profiles for 5 years. If it has been listed before it was prescribed, it may remain until the listing duration expires.

Intentional avoidance of communication or relocation without notifying the creditor of prescription intent may invalidate the prescription.

Misinterpretation of prescription laws might create legal complications. The prescription process aims to fairly balance protection between debtor and creditor.

Reckless Lending: A Ground for Dispute

According to the National Credit Act (NCA), a credit agreement is deemed reckless if the credit provider either fails to conduct the requisite assessment or, having conducted it, enters into an agreement with a consumer despite available information indicating that the consumer either did not understand the obligations or could not afford them.

If you suspect you have fallen victim to reckless lending, it is essential to understand that only a court or the National Consumer Tribunal (NCT) possesses the authority to declare a credit agreement reckless. A debt counsellor can offer valuable assistance by conducting a reckless lending assessment, guiding you on whether the debt was indeed recklessly given to you.

Alternative and Legal Routes to Writing Off Your Debt

Avoid risky behaviours like defaulting and hiding from creditors in an attempt to prescribe your debt. Legal routes are available to help those overwhelmed with debt navigate and ease their financial obligations while keeping crucial assets such as their car and home.

1. Debt Review or Debt Counselling

Debt Review, also known as Debt Counselling, is a systematic process introduced in 2007 by the NCA, aimed explicitly at assisting over-indebted working South Africans in a manner they can afford.

A debt counsellor negotiates with creditors to reduce monthly payments and possibly interest rates. Debt is not written off but it is restructured to make it manageable. The process ensures you exit debt-free without losing your assets.

Once an individual has successfully completed the debt review process, a Clearance Certificate (Form 19) is issued, which signifies that the individual has settled all debts as per the restructured plan. After receiving the certificate, the removal of the debt review status could take between a few days to several weeks. It is advisable to check your credit report to ensure the update has been made.

2. Debt Settlement

In some cases, if you have a lump sum of money available (perhaps from the sale of an asset or a yearly bonus), you might be able to negotiate a debt settlement with your creditors, paying off a reduced amount to settle the entire debt. This is often a negotiation process and isn’t guaranteed.

3. Sequestration (Voluntary or Forced)

Sequestration is a legal process through which your assets are surrendered, and the proceeds are used to pay off your debts. This will include assets such as your home and car. The debtor must have a minimum of R50,000 of debt.

After sequestration, you are legally insolvent, and while this does provide relief from debt, it comes with significant consequences, including restrictions on your ability to obtain credit in the future.

Rehabilitation usually takes several years but does allow you to start afresh. You can apply for rehabilitation, which, if granted, will reinstate your ability to acquire credit. Rehabilitation can be applied for after a minimum period, often between 4 to 5 years after the sequestration order. Even after being rehabilitated, the sequestration flag itself will remain on your credit record for some time.

4. Administration Order

Administration is another legal process that applies to individuals with debts that do not exceed R50,000. Applicants must be insolvent or unable to meet their immediate debt obligations.

An administrator is appointed to manage your finances, pay your debts in a structured manner, and negotiate with your creditors. While under administration, you’re protected from legal action by creditors, but your debt isn’t written off.

An administration order will be listed on your credit record and remain there for several years, even after the order is lifted.

Navigating through overwhelming debt can be daunting, leaving you feeling trapped and hopeless. However, understanding the various avenues and legal frameworks available for relief in South Africa is the first step towards regaining your financial stability.

From understanding the implications of prescribed debt and reckless lending to exploring structured solutions like Debt Review, Debt Settlement, Sequestration, and Administration Order, there are pathways designed to provide relief to over-indebted individuals.

Contact Debt Rescue if you would like to talk to an expert debt counsellor for a free assessment for a reduced single debt repayment.