The Debt Counselling Process Step-by-Step

Debt counselling, also known as debt review, is a formal process in South Africa designed to help consumers who are struggling to manage their debt. It provides legal protection and a structured path to financial recovery. Here’s a detailed, step-by-step look at how it works.

Step 1: The Initial Consultation

• Action: You contact a registered Debt Counsellor.
• Process: You'll have an initial consultation where you provide details about your income, expenses, and all your debts. The debt counsellor will use this to get a preliminary idea of your financial situation.

Step 2: The Formal Application (Form 16)

• Action: If you decide to proceed, you will formally apply for debt review by completing and signing a Form 16.
• Process: This application gives the debt counsellor the authority to act on your behalf. You will need to provide supporting documents like your ID, payslips, bank statements, and any statements from your creditors.

Step 3: The Declaration of Over-Indebtedness (Form 17.1)

• Action: The debt counsellor performs a full financial assessment.
• Process: If they conclude that you are "over-indebted" (meaning you cannot afford to meet your debt obligations), they have 5 business days to formally notify your creditors and the credit bureaus. This is done by issuing a Form 17.1.

Step 4: The 60-Day Protection Period

• Action: The issuing of the Form 17.1 triggers a crucial protection.
• Process: For the next 60 business days, your creditors are legally prohibited from taking any legal action against you. This "breathing room" stops harassing calls and prevents repossession, allowing the debt counsellor to negotiate. During this time, you usually start making a provisional, affordable monthly payment.

Step 5: The Debt Restructuring Proposal (Form 17.2)

• Action: The debt counsellor develops a new repayment plan.
• Process: Within the 60-day period, the debt counsellor sends a formal debt restructuring proposal (Form 17.2) to each of your creditors. This proposal suggests lower monthly payments, often achieved by extending the repayment terms and, in some cases, reducing interest rates.

Step 6: Creditor Negotiations

• Action: Creditors review the proposal.
• Process: Creditors can accept the proposal, reject it, or make a counter-offer. The debt counsellor's job is to find a solution that is acceptable to both you and the majority of your creditors, and which is sustainable in the long term.

Step 7: The Court Order

• Action: The restructured plan is made a formal court order.
• Process: This is the most critical legal step.
  • If all creditors agree, it can be made a Consent Order at the Magistrate's Court, which is a relatively simple process.
  • If any creditor objects, the debt counsellor must make a formal application to the court to have the plan confirmed. The court will then make a final ruling.
• Effect: Once the court order is granted, the new, lower payment plan is legally binding on you and all your creditors.

Step 8: The Repayment Phase

• Action: You make one single monthly payment.
• Process: You pay the agreed-upon amount to a Payment Distribution Agency (PDA). The PDA is an independent, regulated body that distributes the funds to your various creditors according to the court order.

Step 9: The Clearance Certificate (Form 19)

• Action: You complete the process.
• Process: Once all the debts under the plan are paid in full (with the exception of a home loan, which just needs to be up to date), the debt counsellor will issue a Clearance Certificate. This is sent to the credit bureaus, who must then remove the "Under Debt Review" flag from your name, clearing your credit record and allowing you to re-enter the credit market.