One minute you may feel that you are in control of your finances and the next it may seem as though things are falling apart. Legal action, repossession and blacklisted are terms that consumers do not want to hear. It takes just one event or unforeseen circumstance to throw your finances out of order. Most South Africans don’t budget and have no form of emergency savings pot. This results in plenty of consumers landing up in large piles of debt when unexpected expenses arise.
Many South Africans live pay-check to pay-check so an increase in just one expense could be a recipe for disaster. It is very common for consumers to plug these gaps using short-term loans or credit cards. The build up of financial pressure can cause consumers to miss debt repayments. Out of the 25 million or so credit active consumers, some 10 million are in arrears on their accounts.
What Happens When I Default On My Debt?
If you miss debt repayments, your credit providers will initiate a collection process. This will include collection calls and emails, being handed over to collection agents, legal action and even repossession. It is best to try and catch up as soon as possible if you miss payments. If you have taken out vehicle finance or a home loan, the process is much stricter and more serious. The banks last resort will be repossession of the underlying asset.
What Is Voluntary Surrender?
If you know that you will not be able to make your debt repayments on a vehicle or a home you are able to approach the credit provider and proceed with voluntary surrender. You will return the asset to the bank. Voluntary surrender is a sign of good faith.
If you are up to date with repayments, you have the option to withdraw the notice of surrender and try get a better value for the item yourself if you are not happy with the banks offer. Once you have missed payments, you cannot withdraw the surrender of the asset and will have to accept the value that the bank gets for the item, unless you manage to catch up the arrears.
The sale of the asset is usually in the form of a public auction to get a reasonable price. If the sale proceeds are higher than you owe, the bank must grant you the difference. If the asset is sold for less than is owed, you will have a shortfall and will have to pay that amount back to the credit provider. This shortfall is usually converted into, effectively, a personal loan.
What Is Repossession?
When a consumer defaults on vehicle or home loan payments, credit providers usually resort to repossession. Repossession is a statutory process which is preceded by a court order. This process can have a negative impact on your credit report. The credit provider will obtain a court order and a summons will be served by the sherif of the court. You will have a chance to defend yourself in court. If the credit provider wins this case, they will be able to repossess the asset in question and proceed with the sale to recoup their funds. Similar to voluntary surrender, if there is a shortfall, this will need to be covered by the consumer.
Debt Counselling As An Option
Once a section 129 is sent to a defaulting consumer, they have a option to approach a debt counsellor. A debt counsellor can restructure the debt to make it more affordable for the consumer. This is a solution that was created to assist over-indebted consumers and could be the lifeline needed to save the client assets. Debt counselling will allow consumers to keep their homes and vehicles but reduce the monthly repayments.