‘Till debt do us part

South Africa is the only country in the world that allows for home loans to be placed under debt review and is a means of protecting consumers and their home.

Individuals pledging their lives to one another may well be forgiven for wanting to alter their wedding vows such that “death” is replaced with “debt”.

Financial difficulties can place enormous strain on any relationship, more so with shared financial obligations such as a bond. So, what happens when one party is mortgaged to the hilt and the other is in good standing? An entirely likely scenario given that the latest National Credit Regulator (NCR) data shows that only 49.2% of the 25.08 million credit active consumers are up to date with payments.

For the individual struggling to cover their financial obligations and lifestyle expenses, debt review may provide some relief. For the other, it may be burdensome.

“For one to get help, the other has to go into debt review too. They will also be flagged at credit bureaus and won’t be able to apply for loans or take on more debt. This is because the law sees them as one entity if they are married in community of property – it’s so important to enter into an ante-nuptial contract before marriage so that the law sees them as two separate entities,” explained Neil Roets, chief executive of Debt Rescue.

Similarly, individuals that are not married to each other but share a bond would both have to go under debt review. The reason, according to Roets, is because the parties are jointly and severally liable for the debt. “You cannot put half of the property or debt under debt review. So technically, if they both don’t enter into debt review, the bank can go and recover the whole instalment from one of them.”

Technically, joint bond holders can attempt to get around this by taking out a loan in the name of a trust but this is unlikely to work as the bank would require the directors of the trust to sign surety, he said. “The reality is that banks draft the agreement and if you want the loan, [you] will have to agree to their terms. The other option you would have is not to take out the loan.”

That South Africa is the only country in the world that allows for home loans to be placed under debt review is a means of protecting consumers and their home, he added. According to him, this legislation, introduced as part of the National Credit Act in 2007, minimised the impact of the global financial crisis on the country. It forces credit providers to be vigilant when extending loans or else risk being found guilty of reckless lending.

Only consumers that are over indebted can enter into debt review. This process involves arranging a reasonable and sustainable court-ordered payment plan with credit providers, based on an individual’s income and living expenses.

The path from debt review to rehabilitation can take about three years in practice or up to 15 years in theory, Roets said. During this time, a note that a consumer is under debt review will appear on their credit record. He said debt counsellors are only able to provide consumers with certificates of clearance, effectively taking them out of debt review, when all their unsecured loans have been paid off and they are up to date with payments on home and vehicle loans.

Per NCR regulations debt review fees include a once off restructuring fee, which is equal to the monthly repayment of credit providers with a maximum of R6 000 plus VAT. It also regulates a monthly aftercare fee, equivalent to 5% of the monthly repayment to credit providers with a maximum of R400 for the first two years and 3% thereafter. Consumers under debt review are also liable for a legal fee, negotiated between debt counsellors and their attorneys. All fees are included in the payment plan.

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