The phone rings and the agent on the other end inform you that you have not paid your debt. You have no idea what debt he is talking about and the person on the other end says “Just pay R20.00. That is all we ask for”. This is an old trick used by Debt Collectors to collect prescribed debt.
The Prescription Act provides that the basic period of prescription shall be 30 years in respect of any ‘judgement of debt’ and 3 years for ‘any other debt’.
The effect is that in the case of ‘any other debt’ where no payment has been made for a period of 3 years, the debt has “prescribed”. This means that the debt has been completely distinguished and does not have to be paid.
The prescription of debt should not be confused with “debt written off” by Credit Providers. In many cases Credit Bureau reports will show ‘Debt written off”. The legal right to collect debt is retained by Credit providers even if they have written the debt off.
In many cases Creditors’ can sell their Debtor’s Book to Debt Collectors – who will then collect the debt. These Debt Collectors’ aim is to collect more than what they have paid for the Debtors’ Book. When they phone consumers, they often entice them to make a small payment. The reason for this is that any payment creates an interruption of the prescription period. When this is done the prescription period will start to run again and the consumer is obliged to pay the debt in full.
Any written acknowledgment of debt will have the same effect. Any express or tacit acknowledgement of liability by the debtor will create an interruption of the prescription period.
The Prescription Act makes provision for the delay of the prescription period in the following circumstances:
- if the debtor is a minor
- if the debtor lives outside South Africa
- if the creditor and debtor are married to each other
- if both parties are partners in a business
- if the debt is part of arbitration or
- if the debt is part of a claim against an estate.
When you receive a phone call and you are sure it relates to a debt older than 3 years, and where you have made no payment during the last 3 years and you have signed no acknowledgement of debt during the last 3 years, you should not confirm or acknowledge anything, sign nothing and pay nothing. Your only reply should be “Prescription applies …..Good bye”. If you are not sure – ask an expert before you do anything.
In most instances, Debt Collectors collect for their own account, and very often they counter Claims of Prescription. Some agents will simply say: Your information is not correct you have to pay”. Others will come with a more sophisticated response such as this one: “Kindly be advised that a claim of prescription will not exonerate you from the debt”. The simple truth is that if a debt has “prescribed”, it is not merely dormant – it has been completely extinguished – except if prescription is interrupted by a payment or acknowledgement of debt.
If the debt relates to a judgment of a South African Court, the prescription period is 30 years. If you have signed a surety and co-principal debtor and a judgment has been obtained on that debt, you may be held liable for the debt up to 30 years as well.
It must be noted that the normal Prescription rules does not apply to debts owed to the State; such as: Tax, Municipal Debt, TV Licences and Loans from the State.
Your Road to Financial Freedom
The National Credit Act (NCA) offers an ideal opportunity to manage your over-indebtedness. Debt Counselling is a process to financial freedom. This is a proactive step, whereby you can take responsibility for your own financial freedom. This journey will take time, emotional strength and endurance, but it will be very rewarding.
In many ways Debt has limited your freedom by closing doors that would otherwise be open for you. It also affected your lifestyle and demanded more time from you to manage it. In short you have suffered a loss of freedom.
As your financial situation worsened, a suffocating sense of futility will develop in your mind, convincing you that you will never be able to pay off your debt and that you will never achieve the goal of being debt-free. Debt breeds despair and hopelessness, which in many cases start to filter through to other areas of your life, your relationships and your work.
Perhaps the greatest consequence of excessive consumer debt is that it starts to dominate your mind and cripples it with constant, nagging worries – relating to debt and money in general. Mental energies and thought processes that could have been devoted to creative and constructive activities are instead wasted on thinking about one’s debt status or pretending that it doesn’t exist. The greater one’s personal debt, the greater the strain imposed upon one’s personal thoughts.
By applying for Debt Counselling you can take the first brave step to become debt-free.
If you apply for Debt Counselling your first response will be a sense of relief. Your stress levels will reduce and shortly the feeling of despair and hopelessness will be replaced with optimism. You will be able to apply your mental energies to constructive activities, and your mind will no longer be pre-occupied with thinking about your debt. You will have more time to devote to your family and to work.
It is however important to realise that the Debt Counselling process will have its own demands, which will require some changes. A budget will be drawn up for you – which might require you to adjust your lifestyle. This is however a small price to pay if you remember your goal is to be able tocontrol your debt – instead of the debt controlling you. It is very important that you stick to the plan.
The Debt Counselling Process (also called Debt Review)
Step 1: Application
Debt Review Application – is required in terms of Section 86 of the National Credit Act (NCA). The aim is to assist you in restructuring your debt repayments, within your current and future financial means. This will enable you to repay your debt or to reach a point where normal debt repayments can be resumed.
Payments towards your Debt Review, will commence at the first pay day after your application. All payments are made through an authorised “Payment Distribution Agency “(PDA).
Step 2: Affordability
The purpose of the Affordability Assessment is to:
- a)Determine if you are over-indebted in terms of Section 86(6) of the NCA.
- b)Review your debt for possible reckless credit by the Credit Provider which resulted in you becoming over-indebted.
- c)Review your budget to set up a realistic budget.
- d)Determine how much you have available to repay debt. This is called the; “Affordability Amount. “
Step 3: Notification
All your Credit Providers are notified of your Application, and your Debt Review information is updated by them with the latest balances etc.
Step 4: Restructure Rules
Credit Providers have agreed to voluntarily restructure rules to reduce cost and rates. The first aim is to use the Affordability Amount, and to reduce cost and interest rate(s) to a point where the repayment plan is implemented in pre-determined times. If this is impossible, more funds could be made available from your budget. Where voluntary Restructured Rules cannot be used, your Repayment Plan needs to be referred to a Magistrate.
Step 5: Credit provider Acceptance and Referral to Magistrate’s
If the repayment plan can be implemented within the Voluntary Restructured” Rules, Credit Providers will provide an Acceptance Note. The Acceptance Note, as well as the Repayment Plan for all other debt, will be referred to a Magistrate’s Court, in order to obtain a “Court Order”.
Step 6: Rehabilitation
If the voluntary Restructured Rules are applied, the aim is to repay all unsecured debts in 60 months or less. Once the unsecured debt is repaid, you probably will be able to resume normal repayments on your home and vehicle, and this is called the – point of rehabilitation – where you can exit the Debt Review.
If the Voluntary Restructured Rules cannot be applied, a Responsible Debt Repayment Plan will be referred to the Magistrate’s Court for acceptance. Rehabilitation in this case is – the point when all debt has been repaid – or when normal debt repayments can resume.