This guide looks at how consumers can withdraw from the debt review process.
The National Credit Regulator says on its website that the process to terminate debt review by the consumer or debt counsellor is not specified in the National Credit Act. However, it is possible to do so if you find that you don’t want to engage in the debt counselling process any longer for any reason. The credit industry has in the past years developed a voluntary withdrawal process and a Form 17.4 to facilitate the withdrawal process either by a consumer or debt counsellor.
When can a consumer exit debt review process?
Initially consumers could only exit debt review through the issuance of a clearance certificate. This is only issued once all re-arranged debts have been paid in full. By including a home loan in debt reviews consumers had to stay the process until the home loan was paid off. However, this was deemed impractical as this could take a number of years. Amendments have therefore been made to allow consumers to apply for a clearance certificate when all debt, except their home loan, is paid off.
A clearance certificate will be issued if the following requirements have been met:
- You have satisfied all obligations under every credit agreement that was subject to the debt re-arrangement order or agreement in accordance with that order or agreement; or
- You have demonstrated financial ability to satisfy future obligations in terms of the re-arrangement order under a mortgage agreement of any long term agreement that may have been prescribed;
- You have demonstrated that there are no arrears on the re-arrangement; and
- You have demonstrated that all obligations under every credit agreement included in the re-arrangement order or agreement other than those that have been predetermined (e.g. mortgage) have been settled in full.
The NCR stressed that a debt counsellor cannot terminate or withdraw the debt review process. However, there are other ways that you can be withdrawn from debt review.
If you are unhappy with the debt counsellor who is handling your debt review process, you can request that the debt counselling service be suspended with the debt counsellor and be transferred to a different debt counsellor, explained Bhavesh Naran, marketing assistant at Intelligent Debt Management Group.
He added: “Termination cannot happen voluntarily any longer, except for the above instances. Please note withdrawal guidelines was issued by the National Credit Regulator on the 19 February 2015. The 17.W form replaces the 17.4 form, prior to these guidelines receipt of this form was sufficient to update your credit report.”
Can you withdraw from debt review once a court order has been obtained?
Once a debt review court order has been obtained you cannot terminate or withdraw from the debt review process. You “can, however, approach the court to rescind the order or apply for an order which declares that the consumer is no longer over-indebted,” explained the NCR.
Once you have received an order stating that you are no longer over-indebted, your debt counsellor will notify your credit providers of your withdrawal from debt review by issuing a Form 17.W. The debt counsellor will also update the NCR Debt Help System (DHS) with the status G, indicating voluntary withdrawal by the consumer.
You can withdraw from debt review prior to declaration of over-indebtedness according to section 86(7) of the National Credit Act, together with the issuance of a Form 17.2, subject to you having paid your debt counselling fees.
“If a determination is made, and no court order is in place, the consumer will remain under debt review,” noted the NCR.
Can you cancel debt review and go for debt consolidation instead?
If your debt review process is terminated, you can apply for a consolidation loan, however, whether or not you are granted the loan will depend on your credit rating.
Naran revealed: “If you are terminated from debt review, you may attempt to secure a loan, however, this depends on your credit rating, which will more often than not be indicating a poor score, hence the need for debt counselling in the first place. It is most probable that you would be declined a loan due to this reason. You will need to improve your credit score dramatically in order to secure credit/consolidation loans. Consolidation loans carry strict requirements, some of which are that you may not be over-indebted and all accounts need to be fully paid up.”
Terminating the debt review process
“Upon termination, you will most probably still be in debt. The debt review process is designed to get you debt free upon completion of the process, as your payments are spread out over 60 months. Prematurely exiting from the process means that you will still have outstanding debt,” revealed Naran.
He added: “Once exiting, you will lose the benefits of debt counselling, [i.e.] the lower payments and reduced interest rates, as well as the legal protection. This means you will need to revert to the original repayment amounts prior to debt counselling. You may be liable for the arrears amounts on your accounts (which accrues due to the lowered instalments offered under debt counselling, which now falls away, making you liable to repay everything).”
What to consider when you are struggling financially
WesBank provides some tips for consumers to help them manage their finances before becoming over-indebted and needing to enter the debt review process.
- Be proactive when you are aware that you cannot afford a repayment
- Be open and honest with the bank, to ensure the reduced repayment is affordable
- Reduced repayment structures are not permanent solutions
- Do not avoid bills or letters of demand from credit providers
- Avoid accumulating further debt when in a bind
- Consider downgrading to a more affordable and economical vehicle
- Cut unnecessary expenses from monthly budgets to avoid arrears
- As a last resort - seek help from a registered debt counsellor