In terms of the National Credit Act, 34 of 2005 (s131) when a consumer surrenders the goods, the credit provider must then follow the process set out in Section 127 (2) – (9) in order to realise the value of the goods. Once the goods have been sold, this amount is credited to the consumer’s outstanding account. If the amount is less than the settlement value, the credit provider may demand payment from the consumer of this outstanding balance. This is called a ‘shortfall amount’.
If the consumer fails to pay this outstanding amount within 10 days after receiving the required notice, the credit provider may apply for judgment in terms of the Magistrate’s Court Act for the recovery of the remaining settlement value. If, however, the consumer pays the amount demanded after receiving the demand notice, judgment against him or her will be prevented.
A different process is followed when a creditor seeks to enforce a judgment debt. In order to enforce a judgment debt, one may issue a writ or warrant of execution.
In both of these scenarios the effect of the writ or warrant is to instruct the sheriff of the court to attach the property of the judgment debtor so that if the judgment remains unpaid after the attachment, the attached property can be sold at a Sheriff’s auction and the proceeds used to pay the money owed to the judgment creditor.
A credit provider can also seize the assets of a consumer to settle other forms of debt as well. Once judgment has been granted and the judgment debt is not paid the credit provider is entitled to execute against the debtor’s property in satisfaction of the judgment.
Execution is firstly made against movable property belonging to the judgment debtor. If, however, there is insufficient movable property to satisfy the judgment debt, then execution may be made against the immovable property of the judgment debtor. The immovable property must first be declared executable so that it can be attached. This application can only be done in the High Court.
If the amount received from the sale isn’t enough to settle the total amount outstanding, the credit provider can then proceed with steps to recover the shortfall amount. The credit provider must, within 10 business days after the attachment, give the consumer written notice of the estimated value, and/or any other prescribed information.
South Africa is one of the few countries where no conditions are placed on sales in execution of repossessed assets regarding the value that is generated. This has recently come under review.
However, the NCR has stated that it is unfair that assets are sold well below their market value and have launched prosecutions against several credit providers, including banks, and are striving to ensure this protection for South African consumers. Consumers must realise that should they allow the process to get to this stage that they will end up owing more than they originally did, may incur excessive legal fees, may be forced to sequestrate, and may lose their assets. They should therefore act more proactively.
The s.129 letter sent to them, notifying them of their default, provides them with an opportunity to seek assistance from a registered debt counsellor or other alternatives
TO BREAK THE ABOVE CYCLE
If we look at the diagrams above, we can see that possible solutions to breaking the debt cycle are as follows:
• Increase income
• Reduce expenses
• Adjust debts
• Practice smart spending
• Start saving
However, once an individual has fallen into the debt cycle and are in financial crisis perhaps due to changed personal circumstances, it is necessary for them to get outside assistance, and they have a number of solutions available to them. Let us examine the different debt relief mechanisms,
namely administration, sequestration and debt counselling.
Debt counselling is where a debt counsellor develops a repayment plan that is affordable to the consumer and acceptable to the credit providers. A debt counsellor does a budget to calculate how much an over-indebted consumer can afford to pay their credit providers and creates a payment plan for their credit providers in accordance with this. Debt payments are reduced by asking credit providers to extend payment terms and reduce interest rates. Unlike administration, the debt counselling process is set out in the NCA and regulated by the NCR and the NCT.