13 Mar Beware of Debt Review: A Cautionary Tale and Guide for Consumers
Debt review is a legal process designed to assist individuals struggling with debt. However, it is not without its pitfalls. Misleading promises and deceptive tactics can trap unsuspecting consumers, resulting in long-term financial challenges. This article outlines the serious implications of debt review, shares a real-life cautionary tale, and provides practical advice to help you avoid or escape such predicaments.
Consequences of Debt Review – What to Expect:
Debt review may appear to offer a solution to financial difficulties, but it comes with significant drawbacks that can affect your credit and future financial opportunities. Key consequences include:
- No New Credit: While under debt review, you are unable to take out loans, obtain credit cards, or finance major purchases such as a car or home.
- Credit Report Impact: Your credit file will be marked to show that you are under debt review, which can complicate efforts to rent property, secure employment, or open new bank accounts.
- Long-Term Commitments: You must adhere to a strict repayment plan that could extend over many years. Although your monthly payments might decrease, you could end up paying more interest over time.
- Difficult to Exit: Exiting debt review is challenging. In many cases, you remain in the process until all your debts are fully repaid.
These consequences underscore the importance of fully understanding the implications of debt review – or ensuring you are not misled into it.
Case Study – John’s Debt Review Nightmare:
John received a call in late 2024 from a company purporting to be part of a government initiative to help people with debt after COVID-19. They promised to reduce his car loan interest rate to 0% – a proposition that sounded too good to pass up.
After speaking with an agent who requested his pay slips and a list of expenses to “determine his eligibility,” John was informed that he qualified. He then received an SMS containing a link to an electronic sign box, with the assurance, “This is just to let us talk to your creditor and negotiate a better deal for you.” Trusting the process, John clicked the link and signed.
Unbeknownst to him, his signature was used to execute multiple documents – including the official application for debt review (Form 16) and powers of attorney. Weeks later, John discovered that his car loan payments had been altered in a way that offered no financial benefit. The promised 0% interest was a lie, and John found himself trapped in the debt review process.
What Is Debt Review, Really?
Debt review is a structured, legal process intended to help consumers who owe more than they can manage. In simple terms, it works as follows:
- Application: A debt counsellor initiates the process when you sign up – or, in John’s case, when you are unknowingly signed up.
- Assessment: The counsellor reviews your income and expenses. If they determine that you are over-indebted, they notify your creditors and propose a revised payment plan.
- Court Involvement: A court (or designated tribunal) must approve the new payment plan, which you are then required to follow until your debts are fully cleared.
While debt review can offer relief for genuinely over-indebted consumers, being misled into it can create significant financial difficulties.
Can John Get Out of Debt Review?
John was misled into entering debt review, and if he acts quickly, he may have several ways to contest his inclusion:
- Tell the National Credit Regulator (NCR): John can file a complaint with the NCR, presenting evidence such as SMS messages, emails, and call recordings that demonstrate he was misled. If the NCR finds merit in his claim, they may determine that he was never meant to be under debt review and work to have it removed from his record.
- Stop It Before the Court: If the debt counsellor has declared him over-indebted but the court has not yet approved the repayment plan, John can provide proof that he is not over-indebted. Should the court agree and issue an order reflecting his true financial status, the debt counsellor would then be required to instruct creditors that John is declared to be not overindebted.
- After Court Approval, It’s Tough: If the court has already approved the debt review payment plan, John’s options become significantly more limited. In that scenario, he would need to pay off all his short-term debts under the plan to exit the process—a difficult and potentially costly route.
Tips to Avoid Debt Review Traps
Protect yourself from falling into a debt review trap by following these key guidelines:
- Don’t Trust Big Promises: Offers such as 0% interest or claims of “government help” should be treated with caution. Verify these claims with the NCR or consult a trusted financial advisor.
- Understand What You Sign: Always read and understand any documents – whether on paper or online – before you sign. Request copies and ask for clarifications if necessary.
- Check Who You’re Dealing With: Ensure that any company or debt counsellor you engage with is properly registered with the NCR. You can verify their credentials on the NCR website.
- Save Everything: Retain all communications, including texts, emails, and call recordings. These can be crucial evidence if you need to dispute any misrepresentations.
- Act Quickly: If something seems amiss, do not delay. Contact the NCR or seek legal advice immediately to address any discrepancies before the situation escalates.
Finally…
Debt review can be a valuable tool for those who truly cannot meet their debt obligations, but it also carries significant risks – especially if you are misled into it. John’s experience serves as a stark reminder of the importance of understanding what you sign and verifying all claims before proceeding. If you ever suspect that you have been deceived or find yourself trapped in the debt review process, act quickly, gather your evidence, and seek assistance from the NCR or a qualified professional.
Need Legal Assistance?
If you require expert legal advice or representation regarding debt review matters, please contact Louw & Coetzee Attorneys. Our experienced team is ready to help you navigate the complexities of debt review and protect your rights. Reach out today for a confidential consultation.
Written by Wian Notnagel
For more details on the debt review withdrawal process, refer to the NCR’s official guidelines and the Explanatory Note to the Withdrawal Guidelines.