04 Apr What’s Debt Review? Comparing It to Other Debt Solutions
Knowing what debt review is is imperative to having a well-rounded understanding of the debt help systems available. When you know the different debt help avenues you can pursue and have a full picture of each, it’s easier to be confident in your choices and stand steadfast.
Debt review is a government initiative that aims to help the over-indebted through negotiations with creditors. It was established under the National Credit Act around 2005 and provides a legal framework for how consumers can be relieved of over-indebtedness through professional negotiation.
When you undergo debt review, a professional debt counsellor will negotiate with your creditors on your behalf for reduced interest rates, cut repayments, extended repayment periods, and postponed repayment dates. Moreover, the National Credit Act stipulates that creditors may not take legal action against you, such as judgments, garnishee orders, or administration orders.
Besides debt review, you might choose various debt relief avenues, such as administration orders, declaring bankruptcy, and debt mediation. This blog post explores each of these choices and compares them to debt review. It also provides a comprehensive explanation of debt review’s workings and how they might benefit you.
What’s Debt Review?
Debt review is a method of debt consolidation and reduction that’s governed by the National Credit Act, National Credit Regulator, and National Finance Ombudsman.
Debt review allows you to enjoy:
- Reduced repayments
- Lower interest rates
- Extended repayment periods
- Postponed repayment dates
In addition, no creditor can take legal action against you for unpaid debts – you are completely immune from legal action.
After you apply for debt review, your debt counsellor will create a repayment plan. When it’s approved by the court, you’ll make monthly repayments to a PDA (payment distribution agency), which will distribute the payments fairly among your creditors and ensure everyone is paid on time. After three to five years, your debts will be paid off, and you’ll be allowed to apply for a clearance certificate.
You can submit this clearance certificate to the bureaus, which must expunge all records of the debt review flag and the debt that led to it. Then, you can begin rebuilding your credit record responsibly.
Debt Review vs. Other Debt Help Systems
Besides debt review, you have the option of voluntary sequestration, an administration order, or debt mediation.
Voluntary Sequestration
Sequestration is another name for declaring bankruptcy. Under sequestration, your assets will be auctioned, so long as they cover at least 20% of your debts. For instance, if your debt is R100,000 and your assets are worth R20,000, they would be auctioned. Once 20% of your debt has been paid off, the rest is written off.
Sequestration can stay on your credit record for as long as 10 years unless you apply to have it removed by the court. The circumstances under which you can do this vary, so it’s best to check with an attorney to understand your options after sequestration.
How Does It Differ from Debt Review?
Unlike sequestration, debt review ensures the safety of your assets. It’s also removable as soon as you’ve completed repayments with a clearance certificate. You don’t have to undergo the court process of obtaining a rescission order as with sequestration, making recovering from debt review a breeze.
Administration Orders
Administrative orders happen after a judgment. They can be voluntary or involuntary, following a voluntary or default judgment. Under a voluntary judgment, the court puts together a repayment plan, which you must adhere to. Note that administration orders are only applicable to debts of R50,000 or less.
To remove an administration order, you must obtain a 74Q rescission order. After this, you must obtain another order which permits you to apply for credit once more. After you’ve obtained this order, you can submit it to the credit bureaus, which will remove the administration order from your credit report.
How Does It Differ from Debt Review?
Administration orders are only applicable to debts under R50,000, whereas debt review has no set limit to the debts that can be reduced and consolidated. Additionally, debt review doesn’t require a court order for removal, only a clearance certificate.
Debt Mediation
Debt mediation functions similarly to debt review, except it’s not governed by the National Credit Act. It’s acknowledged as an Alternative Dispute Resolution agent, but has no legal framework that governs it or provides legal protection for debtors as debt review does.
Like debt review, debt mediators negotiate for:
- Reduced repayments
- Lower interest rates
- Extended repayment periods
- Postponed repayment dates
How Does It Differ from Debt Review?
Unlike debt review, creditors are not obligated to agree to your debt mediator’s proposal. In addition, there is no cap to the amount debt mediators may ask for their services. With debt review, there is a set amount that debt counsellors may ask for their services, which protects debtors and makes the debt rescue system affordable.
What Will You Choose?
Of the four debt help methods, we feel that debt review is the most viable. Your assets are safe, you are safe from legal action, it’s removable as soon as you’ve completed repayments, and there’s a set limit for how much your practitioner may ask for their services.
True North Debt is an expert team of debt counsellors with years of experience in helping South Africans of all circumstances and financial backgrounds become debt-free. With True North Debt, you get to enjoy:
- Legal protection from creditors
- Freedom from harassment
- Reduced debt repayments
- Lower interest rates
- More time to repay your debts
To learn more, contact True North Debt today. We would love to be of assistance!