How to Remove Your Record for Over Indebtedness with a Credit Bureau

If you find that you are over indebted, you may as a Debtor apply to be declared over-indebted. In most instances, an application is brought in the Magistrate’s Court for you to be declared over-indebted, and for a payment arrangement to be ordered, to repay Creditors. This is commonly known as being under Debt Review. This procedure is governed by The National Credit Act 34 of 2005.

However, some Debtors are able to reach a voluntary arrangement with the Creditors after a recommendation which is by the appointed Debt Counsellor; this is in terms of Section 86 (7) (b) of the National Credit Act.[1]

By any such procedure, once a Debtor is declared over-indebted, such Debtor is unable to enter into new credit transactions; further, judgments cannot be taken against such Debtor.

Once a Debtor is able to satisfy all the debts, a Debtor may be declared to be no longer over-indebted. If the Debtor had been declared under the process of an Application to a Magistrate’s Court, then an Application will be brought in Court to have them declared no longer over-indebted.

In respect of voluntary arrangements which are made with Creditors, the question arises whether or not to be declared ‘no longer over-indebted’ must be done so by a Court. That question was answered in Phaladi V Lamara 2018 (3) SA 265 (WCC).

In Phaladi[ ] case the Applicant who was declared over-indebted as a result of a voluntary arrangement as per S86 (7) (b) of the National Credit Act[ ],  attempted to be declared as not over-indebted in the High Court and to have his credit record expunged.

The Applicant felt that he met the required criteria as he was now able to meet his financial obligations timeously and had his financial affairs in order. He was of the opinion therefore, that it was a reasonable request for the Credit Bureau to expunge his record.

The matter was heard in the High Court, on an unopposed basis, as none of the Creditors opposed the Application.

The Court, upon hearing the matter, informed the Applicant that similar matters had been heard in the High Courts around the Country. In the Western Cape division, matters such as this were dismissed, however, in the Gauteng division, matters of a similar nature had been granted.

Although the High Court has greater power when dealing with matters, as stipulated in the Gauteng cases that the High Court has ‘wider powers’, the Court ultimately dismissed the Application in the Phaladi[4]. The reasons given were as follows:

The Court felt that the relief the Applicant requested was incongruent with the structure of the National Credit Act.[ ] The Court stated that the Act[6] did provide for Debt Counsellors to release Debtors from Debt Review. Moreover, that the Act did not have a remedy to remove a Debtor from debt review under such a set of facts.

Judge Binns- Ward in the Philadi case[7] held that the Court is unable to re-write legislation in their judgments, even if in the case it would be a fair and reasonable judgment to make.

Further, the Court stated that in terms of Section 71 of the Act[8] a Debtor who is declared over-indebted is able to apply for a Clearance Certificate once all their debts have been paid. Such Certificate is issued by the Debt Counsellor.

Accordingly, the Court held that such Section did not provide the Courts any power to remove a credit record, as such the Application was dismissed.

It is important to know the procedure for debt review and the options, whether you are over-indebted or a Debtor who meets the criteria for being declared not over-indebted; as you too can find yourself wasting money due to incorrect procedure – money you may not have to spare.

Aurelia Singh

Practising Attorney