REHABILITATION AFTER BEING OVER-INDEBTED – EXPUNGING YOUR CREDIT RECORD AFTER REHABILITATION

In today’s economic climate, there are many instances where consumers are financially over-encumbered and cannot afford to meet all their monthly credit obligations i.e. the consumer becomes over-indebted, whereas financial institutions and credit providers continue to provide debt to the consumer as they enjoy a higher and longer interest rate.

The National Credit Act 34 of 2005 (hereinafter referred to as the “NCA”) regulates Credit Agreements in South Africa and tries to create a legislative frame work 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 states 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; and
• probable 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 inter alia 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 expunged.

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 expunged was investigated in the case of Phaladi v Lamara 2018 (3) SA 265 (WCC) where in casu the consumer and the debt counsellor entered into a voluntary re-arrangement Order which he complied with and now required that he be released from being over-indebted. In casu, the Honourable Judge Binns-Ward looked at the fact 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 went on further to explain 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 NCA provides 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 thus 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 or 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 expunged this application must be made to the debt counsellor or the National Consumer Tribunal in terms of section 71 of the NCA.

This article is a general information sheet 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. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)