Debt: What are my options?
You’ve heard of so many quick remedies to solve debt-related problems. “Hide your furniture”, they say. “Close your bank account so the debit orders don’t go off”, they advise. “Take out a loan to consolidate your debt”, you might hear.
It is important not to try and solve a problem by replacing it with another problem. If you are over-indebted, it usually means that you need to change the way you are thinking about money. You are spending more than you can afford – it’s as simple as that. It doesn’t really matter at this stage what the reasons are and how you got there.
If you’ve found the right company or person to assist you with your problem, they should be explaining what your options are. In short, it is not limited to – but it could include the following:
- Debt Administration: a process whereby an application is made to Court, to place your estate under administration. That means, your debt is placed in the hands of an administrator to control, manage, and make payment on your behalf. They will assess your financial situation, determine what you have left of your salary after all necessary expenses have been paid, and that will be the amount that you will pay on a monthly basis to your administrator to distribute amongst your creditors, after they have deducted their fees as allowed by the Magistrate’s Court Act. You will have the protection of the law against unscrupulous creditors, and you will not be allowed to incur any debt until you have paid off all of your existing debts. This means that you will be repaying your debts over a much longer period than you would have normally.
- Debt Counselling: a process whereby an application is made to Court, to declare that you are over-indebted and to compel your creditors to accept payment in the amount and against the interest that was negotiated with them through your debt counsellor, and which was accepted by them before the application was brought before Court. You will make a monthly payment to a third party, an independent payment distribution agency, who will according to the payment plan prepared by your debt counsellor, accepted by your creditors and approved by Court, distribute your money to your creditors after deducting fees for the PDA and your debt counsellor. You will also pay back your debts over a longer period than normal.
- Common Law Debt Negotiation: A short term process for people who are in need of temporary assistance. Negotiations will be made on your behalf with your creditors to come to an agreement, whereby you will be afforded leave to pay a reduced instalment for a specific period of time in order for you to service unexpected expenses. These agreements can be reviewed and renewed at your demand. This may mean that extra costs and interest may be added to your debt, in order for you to just get back on your feet before you resume making payment in terms of the original agreement with your creditor.
- Sequestration: A process whereby an application will be made to Court to declare you bankrupt, and during which all of your assets will be liquidated to offer your creditors a certain percentage of the debts owed to them.
You may be of the opinion that all of these options may be the right one for your situation. However, there are certain requirements on each of these remedies and it is important to make sure that you do qualify for the process you are opting for.
STEP FOUR: Don’t get over-excited about a solution if you aren’t certain that you qualify for that remedy.