Alternative measures for the discharge of debts for over-indebted persons under debt-related legislation in South Africa

Abstract

Debtors must be offered robust and comprehensive debt discharge measures. The Insolvency Act is the primary legislation that provides over-indebted natural person debtors with a formal statutory discharge of debts and the available debt-related legislation does not provide for comprehensive discharge of debt or no discharge at all. Over-indebted natural person debtors can make use of debt review in terms of the National Credit Act or administration orders in terms of the Magistrates' Court Act to circumvent the sequestration process. However, both debt review and administration orders do not provide for a discharge of debt but provide for debt-restructuring only, to eventually satisfy the creditor's claims. Moreover, debt intervention in terms of the National Credit Amendment Act is sought to provide a discharge of debt to debtors who are unable to meet the requirements of sequestration orders in terms of the Insolvency Act. The issue facing over-indebted natural person debtors in South Africa is not because there are no debt discharge measures available, but it is the fact that existing debt discharge measures under the Insolvency Act are not robust and comprehensive. Accordingly, many over-indebted natural person debtors are excluded from obtaining debt discharge in terms of the Insolvency Act. Most of these excluded over-indebted natural person debtors fall within the No Income and No Assets (NINA) category. This study discusses problems faced by all over-indebted persons who struggle to access adequate debt discharge in South Africa. Furthermore, the study investigates how the debt-related legislation in South Africa limit the chances of overindebted persons to obtain debt discharge. Consequently, the study proposes law reform of the current debt discharge measures under Magistrates’ Courts Act, National Credit Act, National Credit Amendment Act, Consumer Protection Act, Debt Collectors Act, Prescription Act and Financial Sector Regulation Act in order to provide more robust and comprehensive debt discharge measures for over-indebted persons.