1. Eligibility and Over-Indebtedness
– Debt review is available to individuals who are struggling to meet their monthly debt obligations (e.g., loans, credit cards, store accounts) but still have a regular income.
– You’re considered “over-indebted” if, after paying for necessities like housing and food, you don’t have enough left to cover your debt repayments.
2. Application Process
– Consult a Debt Counsellor: You start by approaching a registered debt counsellor, who is regulated by the National Credit Regulator (NCR). They assess your financial situation, including income, living expenses, and total debt.
– Form 16 Submission: If you qualify, the debt counsellor submits Form 16 to notify your creditors and credit bureaus that you’re under debt review. This flags your status and prevents further legal action from creditors while the process unfolds.
3. Financial Assessment
– The debt counsellor calculates a realistic monthly budget, determining how much you can afford to pay toward your debts after covering essential living costs.
– They negotiate with your creditors to reduce interest rates, extend repayment terms, or lower monthly installments to fit your budget.
4. Debt Repayment Plan
– A restructured payment plan is proposed to creditors. If accepted, you make a single monthly payment to a Payment Distribution Agency (PDA), which then distributes the funds to your creditors according to the agreed plan.
– This plan typically prioritizes secured debts (like home loans) and aims to clear smaller debts first.
5. Legal Protection
– Once under debt review, creditors cannot pursue legal action against you (e.g., repossession or summons) as long as you stick to the repayment plan.
– You’re also barred from taking on new credit until the process is complete.
6. Duration and Completion
– The process can last several years, depending on your debt level and income. On average, it takes 3–5 years to clear debts under review.
– Once all debts (excluding certain long-term loans like mortgages) are paid off, the debt counsellor issues a clearance certificate. Your status is updated with credit bureaus, and you exit debt review.
Key Points to Note
– Costs: Debt counsellors charge fees (e.g., an application fee, monthly fee, and a percentage of your payment), regulated by the NCR.
– Credit Impact: Your credit record will reflect that you’re under debt review, limiting access to new credit until completion.
– Commitment: You must stick to the plan; missing payments can lead to termination of the process, leaving you vulnerable to creditors again.
Who It’s For
– It’s ideal for people with multiple debts who want to avoid sequestration (bankruptcy) and keep their assets, like a house or car.
– It’s not a quick fix or debt forgiveness—every cent owed must still be repaid, just over a longer, more manageable period.
If you’re considering this, it’s worth contacting a registered debt counsellor for a personalized assessment. Would you like me to search for more specific details or resources on this topic?