How to get out of debt review early

The fastest legitimate way out of debt review is to settle the restructured debts and get your clearance certificate. If a court order has not yet been granted, you can normally withdraw simply by telling your debt counsellor in writing. If the order has been granted, you need to go back to court to have it set aside. What you cannot do is stop paying and hope the process quietly ends. That leaves you exposed to every credit provider at once.

Debt review is created by the National Credit Act 34 of 2005 and is designed to protect an over-indebted consumer. That protection has a price: while you are in it, you may not take on new credit, and the flag on your credit record affects everything from a bond application to a cellphone contract.

Route 1: Pay up and get a clearance certificate

This is the exit the Act contemplates. Once the debts covered by your restructuring plan are settled, your debt counsellor must issue a clearance certificate. The counsellor sends it to the credit bureaus, which must remove the debt review listing from your record.

Where a home loan is part of the plan, a clearance certificate can usually be issued once everything except the bond is paid up and the bond is up to date, because a bond is normally restructured over its remaining term rather than a few years.

Ways to reach the end sooner:

• Pay more than the plan requires each month. Ask your counsellor to direct the extra to the highest interest accounts.
• Use a bonus, a tax refund, a retrenchment package, a retirement lump sum or an inheritance to settle accounts.
• Ask for settlement quotes. A credit provider will sometimes accept less than the full balance for an immediate lump sum, and your counsellor can negotiate this.
• Sell an asset you do not need.

A worked example

Thandi has been under debt review for two years. Her plan covers four unsecured accounts with a combined remaining balance of R86 000, and she pays R3 200 a month. She receives a retrenchment package and, after tax, has R70 000 available.

She asks her counsellor for a settlement quote on each account. Two credit providers offer discounts for immediate payment and the total to settle all four comes to R74 000. She pays R70 000 from the package and covers the balance from her next two monthly payments. Within about three months of the payout, her counsellor confirms all four accounts are settled and issues the clearance certificate. Six weeks after that, she has checked all the bureaus and the flag is gone. Had she simply kept paying R3 200 a month, the plan would have run another two and a half years. These figures are illustrative only.

Route 2: Withdraw before the court order

If you applied recently and the matter has not yet been made an order of court, you have room to move. Ask your debt counsellor in writing to withdraw the application, and ask them to notify every credit provider and every credit bureau in writing that the application is withdrawn.

Then check your credit record at each bureau after a few weeks and confirm the debt review flag is gone. If it is still there, lodge a free dispute, as set out in our guide on disputing a credit listing.

Understand what you are giving up. From the moment you withdraw, credit providers may resume collection and legal steps on the accounts that were under review. If you are genuinely over-indebted, withdrawing usually makes things worse.

Route 3: Ask for a rejection if you are not over-indebted

A debt counsellor's job at the assessment stage is to decide whether you are over-indebted. If the assessment shows that you can meet your obligations, the counsellor should reject the application rather than restructure your debt. If your circumstances have improved since you applied, for example a much higher income or a large debt settled, ask the counsellor to reassess.

A rejection at this stage is not a court matter and does not require a lawyer.

Route 4: Apply to court after the order was granted

Once the magistrates' court has granted the debt rearrangement order, the position changes. The order binds you and your credit providers. Our courts have held that a consumer cannot unilaterally walk away from debt review after a court order has been granted, and that the order has to be set aside or varied by a court.

The application usually asks the court to declare that you are no longer over-indebted and to set aside or discharge the rearrangement order. You will normally need:

• proof of your current income and expenses
• an up to date statement of every account under the plan
• an explanation of what changed since the order
• the position of your credit providers, who may consent or oppose

This is a formal application and most people use an attorney for it. Costs vary with whether the matter is opposed.

Documents to gather

Whichever route applies to you, these documents settle most arguments:

• your original debt review application and the assessment your counsellor produced
• the court order or Tribunal consent order, if one was granted
• every monthly statement from the payment distribution agency, showing what was paid to whom
• current balance statements or settlement quotes from each credit provider
• three months of recent payslips and bank statements
• your credit report from each registered bureau
• the counsellor's written fee schedule, so you can check what was deducted

A realistic timeline for each route

Clearance certificate. Settlement quotes typically arrive within a couple of weeks of asking. Once you pay, each credit provider must confirm settlement to your counsellor. Counsellors usually issue the certificate within a few weeks of the last confirmation, and bureaus update within a few weeks after that. Two to three months from lump sum to clean record is a realistic expectation.

Withdrawal before the order. Days to notify, then a few weeks for the bureaus to remove the flag. The exposure to credit providers begins immediately, so have a plan for each account before you send the letter.

Court application after the order. Preparing the papers takes a few weeks. An unopposed application may be heard within one to three months of filing depending on the court. An opposed application can take considerably longer. The flag comes off only after the order is set aside and the counsellor or the court notifies the bureaus.

Your rights and the credit provider's rights

You are entitled to a clearance certificate once the restructured debts are paid, to settlement quotes on request, to a full statement of every payment distributed, to withdraw before an order is granted, and to apply to court after one is granted. You are entitled to have the flag removed promptly once you have properly exited.

The credit provider is entitled to be paid in terms of the plan, to oppose an application to set aside the order if it believes you remain over-indebted, and to terminate its participation in the review if you fall into arrears under the plan. Once you exit, it is entitled to enforce any balance still owing in the ordinary way.

What to do about your credit record afterwards

Whichever route you take, the paperwork is only half the job. Pull a report from each registered credit bureau, because they hold separate data, and confirm the debt review flag has been removed. Keep the clearance certificate or the withdrawal confirmation. If a bureau still shows the flag, lodge a free dispute and escalate to the Credit Ombud, now part of the National Financial Ombud Scheme South Africa, or the National Credit Regulator on 0860 627 627.

Common mistakes and what they cost

Stopping payments to force an exit. Credit providers terminate the review on their accounts and proceed individually. You can lose the vehicle, face judgment and end up with an emoluments attachment order. See what an emoluments attachment order is.

Paying a "debt review removal" company without checking what it does. Some are legitimate attorneys running the court application. Others charge a large fee for a letter that achieves nothing. Ask exactly what they will file, in which court, and get the fee in writing.

Settling accounts without telling your counsellor. If you pay a credit provider directly and the counsellor is not told, the distribution agency keeps paying that account and the certificate is delayed while everyone reconciles.

Assuming the flag comes off automatically. Bureaus update from the counsellor's notification. If it is never sent, the flag stays. Check each bureau yourself.

Not checking your counsellor is registered. The National Credit Regulator can confirm registration and takes complaints against counsellors who do not act, do not account for payments, or refuse to issue a clearance certificate when the debts are settled.

If you cannot afford an attorney

Routes 1, 2 and 3 do not need one. For route 4, the court application after an order, you can ask the clerk of the civil court for the forms, and university law clinics take on these applications for people who qualify. Legal Aid South Africa on 0800 110 110 can tell you whether you meet its means test, and our legal aid page explains what is covered. If your counsellor is withholding a clearance certificate you are entitled to, the National Credit Regulator on 0860 627 627 is free and is the regulator with power over counsellors. The Credit Ombud handles disputes about a bureau that will not remove the flag, also at no cost.

If you are weighing exiting debt review against a more drastic route, our comparison of debt review and sequestration explains the trade-offs.