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When your debt spirals out of control, you might be tempted to avoid thinking about it until you have the emotional energy to handle the situation. If you’ve also lost all or part of your income as a result of Covid-19 lockdown measures, the crisis could seem overwhelming. That’s perfectly understandable, but there’s a real cost to avoidant behaviour that can end up adding to your financial burden. 

The good news is that you are not powerless, even though it may feel that way. In this article, we are going to discuss some of your legal rights when it comes to debt. Paying back debt is always painful, but knowing your rights when dealing with creditors and debt collectors might provide an opportunity to work out a manageable payment plan. 

I owe more than I can pay

If you’re no longer able to meet your debt obligations, don’t be afraid to reach out to the companies to which you owe money. Remember, an account settled late is much better for them than an account not settled at all. Because of the COVID-19 crisis, creditors are likely to be much more accommodating than they would have been otherwise. When you ask them to reduce your monthly repayments, it will naturally increase the number of months you have to repay. As a result you will pay more interest, but you won’t be handed over. Until this debt is settled, avoid taking on new debt if you can. 

Repayment holidays?

Although some institutions are offering repayment holidays, try to negotiate a smaller monthly repayment instead. Once the repayment holidays are over, you are once again liable for the outstanding amounts. You’ve also been charged more interest over that period of time. Negotiating a smaller monthly repayment amount means you can continue to pay the smaller amount until the debt is settled. This protects you if you are still not back on your feet after the payment holiday and it saves you a little on interest.

Asking for an extension on your repayment can be daunting and embarrassing, so we’ve written a script that you can follow. You can also consult this article to see how a debt repayment plan across multiple accounts would work.

Starting with the company where you owe money before your account gets handed over is the cheapest way to deal with over-indebtedness. While you will pay more interest on the outstanding money because of your extended repayment period, you are only liable for the amount you borrowed, the account fees and interest. Once you get handed over, you are liable for the collection fees as well.

I’ve been handed over

As we explain in this article, outstanding accounts get handed over to debt collection agencies when companies try and fail to settle outstanding debt. Debt collection agencies are legal, for-profit businesses that make money by charging fees to indebted individuals. 

The minute you get handed over, the debt collection agency adds their fees on top of the money you already owe. In this article we explain how much more you’ll end up paying once you get handed over.

Before disclosing any information to a person claiming to be a debt collector, ask for a debt collector’s registration number and check whether the agency is registered with the Council for Debt Collectors. 

While debt collection agencies are legally allowed to charge for their services, they can never:

• Collect fees higher than your outstanding debt;
• Collect more than R1023 in addition to your outstanding debt, regardless of what you owe;
• Misrepresent any information about the debt collection process or your debts;
• Share your information with anyone else, including members of your family;
• Violate your civil rights;
• Humiliate you;
• Threaten you;
• Collect more money than you legally owe, which is your original debt, interest and the debt collection fees;
• Sue you, unless the company where you originally borrowed money intends to start legal proceedings against you;
• Pretend to be a lawyer when they are not;
• Threaten you, your family or your property;
• Swear at you;
• Use intimidation tactics, like showing up at your work;
• Harass you on Sundays or at night;
• Discuss your outstanding debts with your employer;
• Disclose information about debts you are disputing;
• Disclose information about your outstanding debts which may cost you employment opportunities.

Debt counselling 

Debt counselling is a process you enter into voluntarily when you are unable to meet all your debt obligations. Since this is not a free service and since you can’t take on any new debt once you apply for debt counselling, you should only consider this route when a creditor is planning on taking legal action against you. 

While debt counselling can’t make your legal troubles disappear, entering into debt counselling will protect you from legal action for 60 days from the day you apply. You will also be protected from legal action once your new repayment plan is in place, on the condition that you stick to the new repayment plan. 

Applying for debt counselling is also not a guarantee that you will receive counselling. If a debt counsellor finds that you are not over-indebted, you won’t be placed into debt counselling. However, you will still have to pay a fee for the counsellor’s finding. 

Debt counselling is not a process to enter into lightly. It costs money and affects your ability to take on new debt. Only consider debt counselling after you have tried to solve the matter with your creditor or debt collection agency.

Debt consolidation

Debt consolidation is the final step in the debt counselling process. You take out one loan to cover all your outstanding debts. This protects your assets from legal action taken by your creditors and leaves you with a single monthly repayment at a more acceptable interest rate. 

Since this is part of the counselling process, this service is not free and you can’t take on any new debt when using it. Once again, this is a last resort to protect yourself and your assets from legal action. Use with caution. 

Identity fraud

If you suspect someone has falsely opened an account in your name, take swift action. The first port of call is to open an identity fraud case at the South African Police Service and get a case number.

Next, get in touch with all the businesses where accounts were falsely opened in your name and alert them to the fraud. They will prevent the fraudster from doing any further transactions and freeze the account. You are not liable for any fraudulent transactions. 

Once the company has concluded their investigation, ask them to issue a letter proving that you were the victim of fraud. The letters you receive from the companies where accounts were opened in your name will enable you to apply for a Protective Registration (PR) from the South African Fraud Prevention Service (SAFPS). 

This service runs a database that South African businesses can access to see whether a person is fraudulently trying to open an account. Once on the SAFPS database, participating companies will be alerted that fraud has been committed using your identity number when the fraudster tries to open more accounts.

The SAFPS will send you a letter stating that you were the victim of identity fraud. When applying for new credit, you might need this letter to prove you are not the fraudster.

Sometimes you may only learn about identity fraud once someone calls you to collect money. To avoid this, remember to check your credit score annually. TransUnion and VCCB are reputable credit score providers.

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This series will help you gain control of debts that have spiralled out of control. We will explain what it means to be handed over for collection and how that differs from debt review, debt consolidation and insolvency. We will help you understand your rights as a consumer and offer some debt management strategies. This series is possible with the help of VeriCred, our partners in debt education.