Prevention of Overindebtedness and Mechanisms for Resolving Overindebtedness of South African Consumers.

Before, the National Credit Act of 2005 there was only one process, besides formal insolvency that overindebted consumers could make use of to alleviate their position. In terms of the Magistrates' Courts Act of 1944 a debtor who is unable to pay his debts may apply for an administration order provided that his debts do not exceed an amount of R50 000. An administration order is a debt relief measure available to some debtors that find themselves in financial distress and that afford them the opportunity to obtain a statutory rescheduling of debt sanctioned by a court order. In 2005 approximately 650 000 persons' affairs were being handled by administrators and there were about 1 200 such administrators in operation. Based on the limit on the amount of the debt, the debtors involved are usually from the lower income group and ignorant of their rights and the obligations of the administrator. In practice, an administration order is in many instances a failure. The procedure also does not provide for a discharge of debts and therefore many debtors remain in a debt-trap. The National Credit Act now creates another alternative to formal insolvency that will be available to all consumers. The Act provides for debt review and debt counselling in cases of overindebtedness. However, debt restructuring orders will only be effective if all the pitfalls and problems experienced with administration orders are properly addressed. It will be investigated whether or not the new Act does in fact address these problems. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]