In the troubling financial times we find ourselves in, many Consumers are increasingly becoming over-indebted.

Broadly a Consumer will be over-indebted if his income is insufficient to adequately provide for himself or his family and to service his debt obligations.

There are obviously varying degrees of over-indebtedness and, most certainly, many Consumers will be able to manage their debt by developing and adhering to a strict monthly budget.

Thereagainst many Consumers, if not the majority, are so overwhelmed by there debt, that they cannot address it by the mere introduction of a budgetary regime. This category of Consumer comes from all walks of life and income groups. The fact is, debt respects no class.

Unfortunately, many over-indebted Consumers, in the erroneous belief that they are powerless to address their burden of debt, often ignore same and go into a state of denial with regard thereto. Others allow considerations of pride or embarrassment to prevent them from seeking and obtaining debt relief.

As I stated in a previous column, unless a Consumer effectively deals with his debt, it will not disappear and will in due course result in legal action, the ramifications of which could be financially devastating, particularly if it relates to a bank foreclosing on a mortgage bond, as will be illustrated hereunder.

Should a Consumer fall behind in his monthly bond instalments, the bank who financed the home loan will, in practice, instruct it’s attorney to issue summons against the defaulting Consumer and subsequently obtain a judgment in terms whereof the entire outstanding balance on the bond is rendered immediately due and payable. Once a judgment has been obtained, the property, which was the subject of the home loan (mortgage bond), will be attached and subsequently sold by the sheriff of the court at an execution sale.

Experience has shown that properties sold at execution sales, are not only sold substantially below market value, but also for less than the outstanding balance due on the home loan. Consequently a Consumer loses not only his most valuable asset, but remains liable for the balance due on the home loan.

Once a Consumer has, in such circumstances, lost his home, the opportunity to thereafter re-enter the property market, is substantially reduced, if not eliminated.

How can a Consumer avoid such a scenario from occurring?

An obvious option will be that a Consumer negotiates an indulgence with the bank concerned or, as the case may be, with the latter’s attorney. This option is, however, fraught with risk as the Consumer will not have equal bargaining power. In addition, such negotiations are often characterized by material non-disclosures, the import of which a Consumer will be unaware of and, furthermore, the outcome thereof is usually tipped in favour of the bank with inadequate, if any, regard to the Consumer’s other debt obligations.

In my view, the more advisable and prudent option available to over-indebted Consumers will be to apply to a firm of debt counsellors to be placed under debt review in terms of the National Credit Act. I base my view on the fact that, as soon as an over-indebted Consumer is registered for debt review and, for as long as he remains under debt review, he will enjoy complete and absolute legal protection from his credit providers. Effectively this means that a Consumer’s credit providers cannot legitimately institute any legal proceedings against him. In addition, a debt counsellor will holistically, with due and realistic regard to the Consumer’s income, required living expenses and all his debt obligations, develop an objective debt re-arrangement payment plan affordable to the Consumer. The benefits speak for itself and, amongst others, will allow the Consumer, if he so prefers, to sell his property in the open market, at market value, as opposed to it being sold at an execution sale.

The debt review process consequently empowers over-indebted Consumers to confidently confront their debt head on and to conquer it, irrespective of how large their aggregate burden of debt may be or what the cause of their over-indebtedness is.

Time is, however, of the essence, as should a credit provider already have issued summons against a defaulting Consumer, the debt of such credit provider can ordinarily no longer be included in the debt review process.

Consumers should consequently realistically consider their financial circumstances and, if over-indebted, pro-actively and without delay, apply to a responsible and trustworthy firm of debt counsellors for debt relief, before it is to late. Most certainly, Consumers should not procrastinate, thereby merely postponing their day of evil, as it were.

Next month I will discuss the debt review process itself.

Mr. JR Bester is a practicing attorney specializing in statutory debt relief mechanisms available to over-indebted consumers.

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