Over-indebtedness and reckless credit

Question 1

What is over-indebtedness?

Answer 1

A person is over-indebted if the available information indicates that the consumer is unable to pay the amounts due under a credit agreement in time.

Question 2

What are the factors that the court must consider when deciding whether or not a consumer is over-indebted?

Answer 2

1. Financial means
2. Financial prospects
3. Other debt
4. History of debt repayment. (section 79)

Question 3

What are tbe alternatives options that a court can pursue besides a declaration of over-indebtedness?

Answer 3

1. Refer consumer to a debt counsellor for a recommendation as to whether or not they are over-indebted (section 85)
2. Consumer applies to be declared as such (section 86), so long as credit provider has not taken steps to recover the debt.

Question 4

What is the debt review process?

Answer 4

Debt counsellor notifies all credit providers and credit bureaux listed in the application and they must co-operate fully with the debt counsellor and counsellor must evaluate the consumer’s indebtedness

Question 5

What are the three possible outcomes of the evaluation?

Answer 5

1. Over-debtedness, application to MC for declaration of reckless debt or debt re-arrangement
2. Not over-indebted but difficulty in paying on time, debt re-arrangement
3. Not over-indebted and application is rejected.

Question 6

What cannot be done during debt review?

Answer 6

Consumer cannot use their credit facility or enter into another credit agreement.

Question 7

What happens if a consumer is in default under a credit agreement and the credit provider has already started with debt enforcement proceedings?

Answer 7

Agreement may not be subject to the debt review.

Question 8

Before entering into a credit agreement, what must a credit provider do?

Answer 8

A credit provider must first take reasonable steps to assess the consumer’s:
1. General understanding of the risks and costs of the proposed credit
2. Debt repayment history
3. Existing financial means, prospects and obligations

Question 9

Which provision deals with reckless credit?

Answer 9

Section 80.

Question 10

What is reckless credit?

Answer 10

1. If at the time the credit agreement was concluded, the credit provider failed to conduct the necessary assessment, irrespective of what the outcome of the assessment might have been
2. The credit provider entered into the agreement despite the fact that information available to the credit provider after the assessment showed that:
   - the consumer did not generally understand the risk and the costs or obligations under the proposed credit agreement
   - the conclusion of the agreement would cause the consumer to become over-indebted.

Question 11

When a court declares that a credit agreement is rekcless, what orders can it make?

Answer 11

1. Set aside all or part of the consumer’s rights and obligations under that agreement
2. Suspend the force and effetc of the agreement for a specific period (s83)

Question 12

What is the case for reckless credit?

Answer 12

Truworths v Minister of Trade and Industry.

Question 13

What must the court also do if it declares a specific agreement reckless?

Answer 13

It must also decide wher or not the consumer is over-indebted at the time of the proceedings and if so make an order suspendng the force and effect of that agreement for a specific period and restructure the consumer’s obligations under any other credit agreements.

Question 14

What happens while the agreement is set aside?

Answer 14

1. Consumer is not required to pay anything ito the credit agreement
2. No interest or fee may be debited to the consumer
3. Credit [rovider’s rights ito the agreement are unenforceable (s84).