How not to get scammed when you try get out of debt review

David O’Brien | 21 September 2022

David O’Brien is the founder and managing director of Meerkat, a company that offers services to those who are over-indebted or who need to reduce their reliance on debt.

When you have debt problems, be very sure you understand any remedies to which you agree.

Debt review or debt counselling may be a good option for you if your debts are unmanageable. Remember, however, that you are committing to a legal process and it can take a few years before you can get out of it.

Some people find themselves committed to debt review without appreciating what they are signing up for. Others are aware they are signing up but don’t understand that the only way out is to pay off your debts.

Debt review is a legal process that is regulated by the National Credit Regulator (NCR) and offers relief to over-indebted consumers. You apply to be assessed by a debt counsellor by completing and signing the application form, which is known as a Form 16.

The debt counsellor assesses your income, expenses and debts to confirm that you are legally over-indebted, which means that you cannot afford to pay your loans after allowing for reasonable living expenses. Read more: What is debt review?

Repayment plan

Initially a payment plan is agreed upon with your banks and other credit providers, and you must stick to that payment plan without taking on more credit. The plan generally takes up to five years to complete.

A court order is granted confirming the agreed repayment terms with all your creditors. This ensures that your credit providers will abide by the agreement and therefore protects your assets from repossession.

However, you are only protected as long as you maintain your monthly payments under the plan.

Once you have completed the plan, your debt counsellor issues a clearance certificate, and you are credit worthy again.

Your status is recorded

If you are declared over-indebted and accepted into debt review, a flag is placed on the NCR database and the credit bureaus are alerted to the fact that you are under debt review. This prevents other credit providers from offering you any further credit to ensure you regain control of your debts.

Once the flag is placed on the NCR database, it can only be removed once you have satisfied the debts included in the payment plan. The NCR will not allow it to be removed for any other reason.

If you want to get out

If your financial circumstances improve, because, for example, you get a better paying job and you feel you are better able to manage your debts, the best thing to do is to make extra payments and settle the debt review plan early.

You should also use your increased income to generate savings so that you are less dependent on debt.

Be careful what you agree to

There have been instances of some unscrupulous companies indicating someone is under debt review, without receiving a signed Form 16 from that person.

If you believe that has happened to you, you can complain to the NCR. However, remember that you may have signed the form electronically using your cell phone.

Get cleared by a registered counsellor

Your registered debt counsellor is the only person or entity empowered to issue a clearance certificate and can only do so once satisfied that your debts have been settled.

That certificate is sent to all your creditors and the credit bureaus, to advise them that you are no longer over-indebted.

It is also sent to the NCR, and the flag indicating you are under debt review is removed from their system. Once the flag is removed, you are free to accept credit, and, if you have maintained your repayments under the plan, your credit score should be good.

Many people have commenced the debt review process without completing it at the time for various reasons.

Later on they find themselves in limbo and unable to access credit, even if they have settled the debts that were on the debt review plan.

The best course of action is to contact your debt counsellor and ask them to issue a clearance certificate. If you have settled all your debts, but you cannot contact your debt counsellor, you can transfer to another debt counsellor, who can issue the clearance certificate for you.

You need to be careful when you attempt to do this, as this process is being abused by companies that aim to take a fee for clearing your name without actually being able to assist you.

The most important thing is to ensure you transfer to a debt counsellor who is registered with the NCR.

Do your due diligence and make sure you are dealing with a legitimate debt counsellor who is on the NCR’s list of registered debt counsellors.

Fortunately, the NCR has begun to identify unregistered entities and is limiting access to its system that is used to clear your name.

How to spot a scammer

One way to spot the scammers is the level of the fees that they charge to remove the debt review flag. Scammers will often ask for thousands of rands. Your original registered debt counsellor should not charge you anything to issue a clearance certificate if you have paid your initial fees at the outset.

If you transfer to a new debt counsellor, it may charge you for the administration depending on the amount of work involved and fees must comply with the NCR’s recommended maximum fees for aftercare or new applications. Read more: What does debt review cost?