10 Apr Changes in Debt Review Removal Legislation

Since 2015, numerous amendments have been made to the National Credit Act to better accommodate creditors and consumers. The NCA came into effect in 2005 and has since caused heated debates over the implications of certain sections of the legislation, especially concerning exiting Debt Review. As of March 2015, exiting Debt Review has become grossly more complex. The case used to be that the court could ask your debt counsellor to reassess your situation and make a recommendation to the court that you be relieved of Debt Review.  Read on to learn detailed descriptions of the legislation changes.

Before September, consumers had much more flexibility with Debt Review. They could withdraw from Debt Review even before a decision on their over-indebtedness was made (through forms 16 & 17.2). Then, the Van Vuuren case established that a consumer’s rights are essentially “frozen” upon application for Debt Review.

The Van Vuuren Case

In September of 2019, Hermanus Van Vuuren and Fabrian Nel applied to exit Debt Review. There was controversy about whether the High Court had power of jurisdiction to address the Debt Review removal application from the two men. Going forward, they’ll be referred to as the applicants. Their financial positions had improved since their initial application, which was the premise of their arguments.

The issues the High Court aimed to resolve include:

• Whether the High Court could declare an applicant is no longer over-indebted when there was no evidence of over-indebtedness.
• After debtors are informed of the application and fresh financial circumstances arise, should the High Court be the first point of contact?
• To answer whether release from Debt Review was consistent with the NCA.
• Whether Section 71 of the NCA offered a solution to expunging records of debt.

Van Vuuren applied for Debt Review, and his debt counsellor informed creditors using form 17.1. The Magistrate court rearranged his payment obligations and halted legal action from creditors. 18 months after his initial application, his financial circumstances. He could pay creditors as per their original terms and no longer needed to rely on Debt Review. So, Van Vuuren asked his debt counsellor to release him from Debt Review, but the counsellor refused because he couldn’t grant him a clearance certificate. The Magistrates court didn’t have the power to release him, so he had to go to the High Court.

He was trapped in Debt Review when he no longer needed it. He complained that he was being treated unfairly.

Section 71 of the NCA

The High Court decided that if Van Vuuren could satisfy the conditions stipulated in Section 71(1) B, he could exit debt review. If he didn’t he had no right to exit. The court concluded that an exit from Debt Review was to be granted by the Magistrate’s court. The relief the applicants sought didn’t meet the terms of the NCA.

The takeaway? You can’t exit debt review if you don’t meet the terms of Section 71 of the National Credit Act. Then in 2022, the NCR clarified that consumers cannot withdraw from Debt Review once a Debt Counselor has begun the assessment process.

Consumers can only exit after completing the Debt Repayment Plan under a court order or before the issuance of a form 17.2(b) declaring them over-indebted. And if you disagree with your assessment, you can challenge it in court with substantial evidence to prove otherwise.

If you need help with exiting debt review, don’t hesitate to contact Cape Town Legal Consultants. We’re happy to help.