Legal consequences of defaulting on debt obligations.

If a consumer has any problems repaying their debts, the first thing to do is to contact the creditors immediately. If they do not make an alternative payment arrangement with the creditor, the creditor can hand the matter over to a debt collector or lawyer who will take legal action against the consumer to recover the money owing. If this happens the consumer will end up paying much more for the debt, because of extra interest and legal charges, and will definitely be worse off than before.

For many consumers the experience of receiving legal letters and documents and visits from sheriffs and debt collectors is frightening, confusing and humiliating. Below describes a process that is usually followed when a consumer fails to pay a debt or to make an arrangement with a creditor.

Steps taken for repaying debt

Some companies will phone a consumer when they default – this is the best option for the consumer who should take advantage of this and offer to pay as much as they can. Where there is an agreement, the consumer should confirm any telephonic agreement in writing and keep copies with fax coversheets as proof. Also they should make sure that they pay what they promise to pay as this will avoid their account being collected through a court process.

A consumer may instead or also receive a letter demanding payment. The National Credit Act now makes this letter (called a section 129 Letter) compulsory before a creditor can take any legal action. The letter also has to advise that the consumer has the right to approach a debt counselor for help if the consumer is over-indebted.

When a consumer receives a letter of demand they should then either

• - contact the creditor and make an arrangement to pay, or


• - if they cannot cope with all the debt that they have, contact a debt counselor

If the consumer disagrees with the claim or the amount that they say is owing, the consumer must act immediately contact the creditor, confirm what the consumer disputes in writing and ask for proof of the debt/balance of the debt.

If the consumer is still unhappy after negotiating with the creditor, refer the complaint to the next level:

• - if it is a Bank, contact the Ombudsman for Banking Services


• - if it is any other credit, contact the Credit Ombud or the National Credit Regulator

NOTE: As a paralegal it is important to act immediately to assist the consumer – it becomes very costly if the debt lands up being collected through a legal process.

The creditor must wait 10 working days from the date that they send a letter of demand, before they can take the legal process further.

If the consumer does not respond to the letter of demand, the creditor will usually send an agent to the consumer’s home or workplace to asked them to sign either:

a Section 57 Acknowledgement of Debt where the consumer signs that they owe the money (the amount will be stated), and that they promise to pay monthly installments in that amount. They also sign that if they default again (do not pay) on any installment as agreed, the creditor can take the documents signed to court, have a judgment taken against the consumer, and get an emolument attachment order against the consumer’s salary;