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THE NCA AND A SPOT OF SILVER LINING FOR CREDITORS ...... BUT ONLY IF YOU DO IT CORRECTLY In terms of the National Credit Act, a creditor cannot take legal steps against a defaulting debtor without first giving notice of default to him/her, proposing that the debtor refer the credit agreement to a debt counsellor or other competent authority. The potential for prolonged delay - and consequent prejudice to the creditor - is significant. However some good news for creditors has come out of two recent High Court cases, which make it clear that the courts will not allow the process to be abused by debtors in a dishonest attempt to delay the inevitable. In both cases, a bank successfully applied for judgment against homeowner debtors, who tried - without success - to avoid judgment (and the consequent sale in execution of their bonded houses) by claiming to be "over-indebted". Creditors need to note that the bank's meticulous compliance in each case with the Act's many formalities clearly contributed to its success - even a minor failure in this regard will prejudice your recovery attempts. Debtors on the other hand should seek debt counseling as soon as they find themselves in financial distress, and should certainly never delay in reacting to any form of notice from a creditor. Once in court, you will have to: - Prove that you are factually over-indebted, and Persuade the court to exercise its discretion not to grant judgment (just proving that you are over-indebted isn't enough at this stage), and Explain your failure to approach a debt counsellor on receiving the notice of default. Particularly heartening for creditors will be the Court's comment in one of the cases that: "In any event my view is that the NCA does not envisage that a consumer may claim to be over-indebted whilst at the same time retaining possession of the goods which form the subject matter of the agreement. Such goods should be sold to reduce the defendant's indebtedness". Concluding that the debtor's defence was "merely a blatant stratagem to delay the plaintiff's claim and that it is not bona fide", the Court granted judgment for the creditor with a punitive costs order against the debtor. Recent Articles for June 2009;
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