Rehabilitation After Being Over-Indebted

In today’s economic climate, there are many instances where consumers are financially over-burdened and cannot afford to meet all their monthly credit obligations as a result the consumer becomes over-indebted.


The National Credit Act 34 of 2005 (referred to “NCA”) regulates Credit Agreements in South Africa and attempts to create a legislative framework of checks and balances to which credit providers are to comply, in order to prevent over-indebtedness. Section 79(1) (a) and (b) of the NCA stipulates that:

“A consumer is over-indebted if the preponderance of available information at the time a determination is made indicates that the particular consumer is or will be unable to satisfy in a timely manner all the obligations under all the credit agreements to which the consumer is a party, having regard to that consumer’s financial means, prospects and obligations; andprobable propensity to satisfy in a timely manner all the obligations under all the credit agreements to which the consumer is a party, as indicated by the consumer’s history of debt repayment.”


Section 86 of the NCA sets out the procedure in which a consumer can apply to a debt counsellor to have himself or herself declared over-indebted. Once the debt counsellor is satisfied that the consumer is indeed over-indebted, the debt counsellor may ask the Magistrates’ Court to make an Order declaring that the consumer’s financial obligations are re-arranged for a certain period of time, alternatively that the consumer and the debt counsellor can enter into a voluntary re-arrangement Order. Once the consumer has adhered to the terms of the re-arrangement Order, and the consumer is now financially sound, the debt counsellor after due investigation, may in terms of section 71 of the NCA issue a certificate declaring same which the consumer may then register with the Credit Bureau after which the consumers credit records must be removed.


The question of whether a consumer can apply to the High Court for an order declaring that he was no longer over-indebted and that his adverse credit record with the credit bureau be removed was dealt with in the case of PHALADI v LAMARA 2018 (3) SA 265 (WCC) where the consumer and the debt counsellor entered into a voluntary re-arrangement Order which he complied with and thereafter required that he be released from being over-indebted. The Honourable Judge Binns Ward held that the High Court enjoys “inherent powers to regulate procedures interest of proper administration of justice” and that the Court is indeed bound by section 39(2) of the Constitution of the Republic of South Africa to “interpret and apply legislative enactment’s and to develop our common law in a matter that promotes the spirit, purport and objects of the Bill of Rights”.


The Court further explained that the term “over-indebtedness” is not part of our common law and is thus a creature of statute (as a result of the NCA). The Court stated that section 71 of the NCAprovides the consumer with a mere remedy whereby the over-indebted can obtain an opportunity to settle their debt related to a credit agreement in a responsible, dignified and ordered manner.


The Court held that both the Magistrates’ Court and High Court is limited when dealing with the mechanisms contained in the NCA and that section 71 of the NCA only entitles the over-indebted consumer to seek the relief set out therein which enables him or her to apply for a clearance certificate from the debt counsellor once all his debts have been paid in terms of the re-arrangement Order.


Section 71 of the NCA does not empower the Courts to issue any such clearance certificates. It must therefore be noted that when a consumer wants to apply for his or her debts to be erase this application must be made to the debt counsellor or the National Consumer Tribunal in terms of section 71 of the NCA.


Disclaimer: This article is general information and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein.

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