Two types of terminations under debt review – and what it means for the consumer
When you’re in debt, it can be scary to think that your creditors could take legal action against you. But if you apply for debt review, you’re protected from this, right? Well, not entirely.
There are two types of terminations that can happen when you’re under debt review. If you don’t follow the rules or make your payments on time, your account can be terminated either under section 86(10) or section 88(3) of the National Credit Act.
If your account is terminated under section 86(10)
This means that you didn’t file a debt review application within 60 days of applying for it. In this case, your creditors can terminate your credit agreement with them, which means they can take legal action to recover the full amount you owe them.
If your account is terminated under section 88(3)
This means that you did file a debt review application, but you didn’t stick to the payment arrangement that was agreed upon. In this case, your creditors can also terminate your credit agreement with them and take legal action to recover the full amount you owe them.
Difference between section 86(10) and section 88(3) of the NCA
The main difference between terminations under sections 86(10) and 88(3) is that section 88(3) involves a payment re-arrangement agreement and/or a court order, while section 86(10) does not. However, in both cases, the consumer has defaulted on their credit agreement. The second difference is that section 88(3) involves a debt review application filed at court or a court order, while section 86(10) does not.
Consequences of terminations
If your account is terminated, it’s important to contact your creditors right away and try to work out a payment plan before they take legal action. If legal action is taken, your safety blanket under debt review falls away and you’ll be unprotected against litigation.
In short, debt review can protect you from legal action, but only if you follow the rules and make your payments on time. If you don’t, your creditors can terminate your credit agreement and take legal action to recover the full amount you owe them.
For more information contact Hammond Pole attorneys: CarlaDW@hammondpole.co.za