We had a chat with the Upstream Group,  about the implications of being under debt review.

Q: What does it mean to be in debt review?

A: Debt Review is a legal process to help over-indebted consumers manage their financial expectations, without the fear of legal action being taken against them. The consumer appoints a debt counsellor who facilitates discussions on behalf of the consumer and the credit provider, to restructure the debt of the consumer to allow for all credit responsibilities to be managed. The Debt Counsellor and Credit Provider mediate a fair compromise, taking into account the consumer’s financial capabilities as well as the consumer’s financial obligations and coming to an agreement as to how the consumer can reasonably settle all of the debts owed. Once agreed, the debt counsellor refers the matter to court, and a court order is sought in line with what has been agreed between the debt counsellor (acting on behalf of the consumer) and the credit provider. The consumer is then protected from legal action being taken, subject to the consumer complying with the Court Order. The money is paid to a payment distribution agency which then makes payment to all credit providers as per the court order.

Q: How does someone get themselves into this situation – is it voluntary or based on bad decisions?

A: Many factors and reasons could contribute to why the consumer gets themselves into this situation, and some factors may be out of the consumer’s hands. In some instances, the consumer applies for more credit than what he/she can pay. In other circumstances, there may be a material change in the consumer’s life that creates the situation of inability to pay his/her debts, these could include; retrenchment, disability, death or disability of a family member that contributed toward the common household etc. The current inflation of common household food and products, as well as the increasing fuel price, has had a negative impact on the financial circumstances of consumers, as the cost of living may, in certain circumstances, exceed the consumer’s budgeted financial capability.

Q: What are the implications of being under debt review good and bad?

A: When a consumer is placed under debt review, they are prohibited from taking out further credit. The result of this is that the consumer’s financial commitments are then regulated/capped to the value of debts owed at the time of entering into debt review and the consumer is not able to take out any further debt. The Debt Review process further protects the consumer from legal action being taken against him/her and the potential for judgment to be taken, which can then progress to legal attachment and/or foreclosure proceedings. The implications are therefore in favour of the consumer as the process protects the consumer from further legal action.

Q: How can they get out of this status – is it merely just paying off their debt?

A: The consumer is obligated to make payment in terms of the court order until all debts have been settled in full. Once a consumer has paid off a credit provider, the credit provider will provide the consumer with a clearance letter stating that no more funds are owed to that credit provider. Once all debts have been paid in full, including any interest obligations, and the consumer has received clearance letters from all credit providers, the consumer will no longer be considered to be under debt review and can thereafter take control of his / her financial circumstances and apply for credit. The consumer may find himself/herself able to settle the debts sooner and accordingly, makes payment of a settlement sum to the credit provider. The result of this will be that no further interest will be charged on the debt and the consumer will be released from debt review by that credit provider. It is to the advantage of the consumer to settle all debts owed as soon as reasonably possible.