05 Mar Is There Debt Forgiveness in South Africa?

If you’re in a lot of debt and struggling to make repayments, you may have wondered whether there’s such a thing as debt forgiveness in South Africa. Technically, there is: debt review, sequestration, reckless credit assessment, and prescription debt.

With rising economic pressures like inflation and the cost of living crisis, debt forgiveness has never been a more crucial measure. The National Credit Act has been paramount in debt forgiveness, creating a legal framework to relieve over-indebtedness with the introduction of debt review in 2005. The government recognised the hardships South Africans were facing as we became more credit-reliant in the wake of the early 2000s recession and economic depression.

This post discusses different means of debt forgiveness in South Africa, including debt review, sequestration, reckless credit assessment, and prescribing debt.

Let’s get into it.

Debt Review

Debt review is a legal process wherein a debt counsellor negotiates on your behalf for lower interest rates and reduced repayments. Under debt review, you’re fully protected from legal action creditors might take, such as judgments or garnishee orders, unless you default on a payment or take out another loan. Debt review monthly payments are usually much lower than initial credit repayments, as creditors must agree to lower your repayments and interest rates to rescue you from over-indebtedness. The National Credit Act says:

Section 86 (5) says, “A consumer who applies to a debt counsellor, and each credit provider…must…comply with any reasonable requests by the debt counsellor to facilitate the
evaluation of the consumer’s state of indebtedness and the prospects for
responsible debt re-arrangement; and participate in good faith in the review and in any negotiations designed to result in responsible debt re-arrangement.”

Apply for debt review and get much lower interest rates and repayments, freeing up room in your budget for what’s important.

Sequestration

Sequestration is another word for declaring bankruptcy. Under sequestration, your assets will be sold, so long as they cover at least 20% of your debt. The rest of your debt will be written off.

We don’t recommend this option, as sequestration can stay on your credit record for as long as 10 years. You’ll also lose valuable assets, such as your car or house.

Reckless Credit

If someone lends you money without checking if you can afford it (conducting an affordability assessment) or disregards your inability to afford it, they have lent you money recklessly. Under the National Credit Act (NCA), this is an illegal offence and can result in most or all of your debt being written off.

Debt counsellors can conduct reckless credit assessments, ensuring you don’t pay for debt that was recklessly lent to you.

Prescription Debt

If neither you nor your creditor have been in contact for three years or more (depending on the type of debt), you can apply for the debt to be prescribed – written off.

The prescription periods for debt are:

• 3 years for most unsecured debt (credit cards, personal loans, etc.)
• 30 years for home loans, judgments, and tax debt

After these periods have passed, it can no longer be collected. You can apply for the debt to be written off your credit report. Note that neither you nor your creditor must have made contact within that period. If you’ve made promises to pay the debt, or your creditor has contacted you regarding the debt, it can’t be prescribed.

Let True North Debt Be of Assistance

During the debt review assessment process, we can assess for prescription debt and reckless credit. We’ll also negotiate for lower interest rates and repayments, ensuring you have extra room in your budget for what matters. To learn more, contact us today.