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    Question Ask SKY

    Good Morning

    I have noticed that there is a huge interest in matters relating to the NCA, debt counselling and financial matters. Because the NCA is so new and the case law is developing rapidly, things change rather quickly in this field. I have noticed that the postings are quite old and many of the questions that would have been difficult to answer then can be quite easily answered now.

    I am starting this thread to answer any questions that any person may have regarding the NCA, debt counselling or related matters. I am a registered Debt Counsellor and informing and educating is an important aspect of this role. Surely I will also learn and grow from these interactions as well.

    All the advice offered here is free. Should you have an issue for which you seek urgent and confidential advice, please feel free to e-mail me at munien@vodamail.co.za. Thats also free. I only charge to process debt review applications.

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    It would be interesting to hear an NCA angle opinion on the investment or loan question.
    The trouble with opportunity is it normally comes dressed up as work.

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    Lease

    A lease of movable property constitutes a credit transaction if :
    - temporary possession of the property is given to the consumer, and
    - payment for the possession and use of the property is deferred during the agreement, and
    - interest, fees and charges are payable on the amount deferred, and
    - at the end of the lease agreement, ownership is granted to the consumer.

    The lessor under such a lease is a credit provider and must register if the total value of the lease is over R500 000.

    This question though is more about risk. If the lease is made out to the other business, then that business does not qualify for Chapter 4 Part D of the Act which deals with over-indebtedness. So should something happen, the other business cannot get protection from the NCA to keep the equipment while defaulting on the lease. The Act wouldn't apply.

    Invest or loan?
    Relationships change over time and when things go bad, these issues can get pretty sour. Maintaining investments in separate entities where possible is advisable for the following reasons :
    - each party maintains control of his own investment
    - perceptions or allegations of wastefulness or mismanagement of funds are thus avoided
    - the transaction can be more focused and structured when done between separate entities
    - all of these make adjudication in the event of a dispute easier because there are less grey areas
    - in the event of one business failing, the other investment remains intact and immune from liabibility, as well as still being available to generate reward from productive use elsewhere.

    The cost would be the administrative burden in maintaining an additional entity.

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    Dave A (03-Apr-10)

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    Some brief facts about debt review

    a) A consumer must qualify for the protections granted under debt review, in that he must, on the balance of probability, be proven to be over-indebted.

    b) There is no limit placed on the amount of debt that a consumer may have in order to be placed under debt review.

    c) No legal action may be instituted against the consumer for 60 business days from the date of his application for debt review. If legal action has already been instituted, these credit agreements must be excluded from any payment proposal.

    d) No possessions under the credit agreements under review may be attached or repossessed by the credit provider or his representatives.

    e) All credit bureaux are advised of the consumers’ debt review status and no further credit will be granted to the consumer until he is issued with a clearance certificate by any registered debt counsellor.

    f) A consumer may not use any credit facility granted to him whilst under debt review.

    g) Credit providers may not harass a consumer whilst under debt review and all queries should be directed to the debt counsellor.

    h) In order to enjoy the protection of debt review, a consent order must be granted by a Magistrates Court which has jurisdiction in the consumers’ residence and the consumer must adhere to the payment schedule agreed to.

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    Whats fees would I pay?

    Fees charged by Debt Counsellors seem to be a sticky point are there are instances of abuse. Legislation does not regulate fees and the Debt Counselling Association of South Africa has issued a guideline which Debt Counsellors should adhere to. If you or anyone you know intends to go under debt review, then check whether the fees charged comply with this guideline. If they don't, rather seek out a registered Debt Counsellor who will charge these fees or lower.

    Also remember that in addition to these fees consumers will pay attorneys fees and monthly Payment Distribution Agency fees.

    This is the memo sent out by the Debt Counsellors Association.

    Debt Counselling Association of South Africa.
    P O Box 2256
    Northriding
    2162
    Tel: (011) 799 8000


    Debt Counseling Fee Guidelines


    1. The Debt Counsellor may receive the following amounts in respect of consumers with an individual gross income of more than R2 500.00 per month or household income of more than R3 500.00 per month:

    1.1. An application fee, recoverable directly from the consumer upon receiving an application for debt review, limited to the amount prescribed in terms of Schedule 2 (2) of the Act;

    1.2. A rejection fee of R300.00 (excluding Vat) in respect of consumers whose applications have been rejected in terms of section 86(7)(a);

    1.3. A restructuring fee of the lesser of the first instalment of the debt re-arrangement plan or R3000.00 (excluding Vat), in respect of a consumer whose applications have been accepted in terms of 86(7) (b) or 86(7) (c). (Should a joint application be required the fee can be increased to R4000.00 (excluding Vat)).

    The fee is payable as follows:
    1.3.1 100 percent of the fee is payable at the first instalment.

    1.4. Should a Debt Counsellor fail to summit proposals to Credit Providers or refer the matter to a Tribunal or a Magistrate Court within 60 business days from date of the debt review application the Debt Counsellor has to refund 100% percent of the fee paid by the consumer.

    1.5. A monthly after-care fee of 5 percent (excluding Vat) of the monthly instalment of the debt re-arrangement plan up to a maximum of R300 (excluding Vat), for a period of 24 months, thereafter reducing to 3 percent (excluding Vat) of the monthly instalment, to a maximum of R300 (excluding Vat), for the remaining period of the debt re-arrangement plan.

    1.5.1. Payment of the monthly after-care fee is to commence in the 2nd month after the amount in 1.3.1 above has been paid.

    1.6. Should the consumer withdraw from the process after completing stages 1.3 above a fee equal to 75 percent of the restructuring fee as per 1.3 above is payable by the consumer;

    1.7. Legal fees, if and when they occur, may be recovered from the consumer provided the amount of such fees are disclosed up-front to the consumer and agreed to in writing by the consumer.

    1.8. The fee structure will be reviewed in January 2009.

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    Is Debt Consolidation the answer?

    Most people under debt stress call me to enquire whether I do debt consolidation. I don't. However there is a perception out there that this is a responsible way of resolving your debt issues and a means of resolving overindebtedness. Mathematically debt consolidation does not make sense because if the terms of your credit agreements remain the same (installments, interest, charges and term) and you can only get a comparable interest rate on your new loan, then you're still going to be over-indebted. However, if you do not wish to make payments to a number of creditors but wish to make just a single payment on the same total debt, then debt consolidation may work for you.

    The purpose of debt review is to provide cash flow relief to the consumer by extending the terms of credit agreements. The industry has developed certain norms, one of which is maximum limits on terms of different types of debt (eg. 36 months for bonds and 84 months for vehicle finance). Should you be unable to resolve your debt within these periods based on your affordability, then credit providers will consider reducing your interest rate first to prime, then to 0%. They are not compelled to do so, but most will. This is effective relief and means most consumers will be able to resolve most debt within five years.

    Debt consolidation can achieve same only if you take a long term loan for which the monthly installment is lower that you current monthly debt obligation. Equity on a bond is a good idea for this.

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    Quote Originally Posted by SKYDC View Post
    Should you be unable to resolve your debt within these periods based on your affordability, then credit providers will consider reducing your interest rate first to prime, then to 0%. They are not compelled to do so, but most will.
    Wow! Didn't know that. Is it happening much?
    The trouble with opportunity is it normally comes dressed up as work.

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    Debt Counsellors can Negotiate

    It does. Many clients state of indebtedness are severe and the banks will reduce the interest rates in order to get an acceptable plan.

    The banks formed the National Debt Mediation Association (www.ndma.org.za) in order to facilitate mediation between debt counsellors / consumers and credit providers. The NDMA is very effective and they possess a set of rules where interest rate reductions are incorporated in drawing up a payment plan.

    One of my clients was retrenched and could not secure enough income to keep his vehicle. The bank told me to drop the interest rate to 7% and to make the installment 40% of the original installment for the first two years. This was a good deal.

    The deal you get also depends on the Debt Counsellors ability to negotiate on your behalf. When looking for a Debt Counsellor :
    1. Check the NCR site to verify his registration
    2. Vist the NDMA site to find a Debt Counsellor who is registered with them
    3. I strongly advise against internet debt review. I have clients who have had terrible experiences and ended up being skimmed for cash with no arrangement being made. Their finances end up being in a really sorry sate and it becomes difficult to remedy the situation.
    4. Always chose a Debt Counsellor after you meet him / her in person. Some Debt Counsellors will meet after hours as this is a great convenience for the consumer. I run my office from home just so I can offer this benefit and I consult with most of my clients after hours.
    5. Always insist on dealing directly with a debt counsellor and check his certificate. Do not deal with consultants.
    6. The moment a Debt Counsellor says "Don't pay your creditors, pay me" get a termination letter from him / her and find someone else. You should not make any payments (except for your R50 application fee) directly to a Debt Counsellor. It should be done via a Payment Distribution Agency.

    I have seen how effective a remedy debt counselling is if it is done correctly and if the consumer participates in the process.

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    Dave A (14-Apr-10)

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    My Website

    If you're interested I have just published a simple website.

    http://debtcounsellor.weebly.com/

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    Site Caretaker Dave A's Avatar
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    Simple, but quite informative and assuring. I like it
    The trouble with opportunity is it normally comes dressed up as work.

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    SKYDC (14-Apr-10)

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