What is Debt Rehabilitation

Learn about what it means to undergo debt rehabilitation

Debt Rehabilitation

Debt rehabilitation is a legal process where a High Court, relieves someone who has been declared insolvent of any legal repercussions of being insolvent, returning their legal status to someone who was never declared insolvent.

The process restores a person’s credit worthiness after a court has ordered a person rehabilitated from debt. Are you possibly listed on ITC or blacklisted?  Inform yourself about these measures so you can understand where you are in the over-indebted stakes. Only when a person has been sequestrated can he/she apply for rehabilitation.  A debt advisor or legal professional will carry out an assessment to determine whether you are eligible. Fill out our credit rehabilitation assessment.

Let’s get some more clarity on what we’re talking about here. The NCA(National Credit Act)  defines debt rehabilitation: “ If a consumer who has been sequestrated or liquidated pays off all his/her debt, the court can remove the sequestration or liquidation order.”

So debt rehabilitation occurs after a person has been declared insolvent and the sequestration process has taken place. It puts an ultimate end to a general journey of financial rehabilitation and restores a person’s name.

Getting into a situation of over-indebtedness is quite stressful. There are so many options to address any debt situation, but how do you know which is the best option? Living with the constant hassle from credit providers who demand payment is not a situation anyone wants to be in. Many people successfully undergo debt counseling once they realize they are over-indebted, but for those who wait too long to visit a debt counsellor or who defaulted on their re-arranged payment plan with creditors while under debt review, insolvency, liquidation and sequestration might be on the cards.

If you have been declared insolvent, it means you are legally declared incapable of paying debts you owe.

Another important term to understand is sequestration which is defined as a process where an entity(usually a credit provider like a bank) legally takes ownership of a person’s assets (possessions, properties, cars etc,) until this person has repaid their debt or some other claim has been met.

Rehabilitation stems from Section 129 of the Insolvency Act and is a measure that abruptly ends the sequestration process, it also writes off all your debts which you still needed to pay. So it is the last step in freeing yourself from a bad credit record.

This is not to be confused with a Section 129 Notice which might occur long before rehabilitation.  A Section 129 notice is a legal notification from a credit provider to a customer, that they are behind on their payments and is the first step in the legal process between creditor and debtor. Many recent court rulings have focused on how Section 129 notices are served, and how binding they are under certain circumstances. For example in the case of Sebola v Standard Bank in reference to a Section 129 National Credit Act notice not being received by the defendant,  the court held that the credit provider must be able to prove that the notice has been delivered to the consumer.

When it comes to debt procedures in court and the legal processes in general, both consumers and creditors have recourse.

Creditors can take legal action and approach a Court to enforce a credit agreement which has not been honoured under the following conditions,

  •  The consumer did not respond to the written notice from the credit provider to bring repayments under a credit agreement up to date,
  •  The consumer refused to agree to a proposal made by the credit provider in the written notice, suggesting ways in which to resolve any dispute.
  •  The consumer did not approach a debt counsellor within the  allowed 10 business days.”

A consumer also has recourse when legal processes commence. According to the NCR, ”A consumer can terminate a credit agreement by returning the goods to the credit provider …(who)… will have to sell the goods. The consumer will have to cough up any shortfall should the goods be sold at a price less than the outstanding balance. The Act specifies that the credit provider may approach the court to recover the shortfall if not paid within 10 business days.

The court will only consider the credit provider’s request for a judgment if the credit agreement is not subject to debt review. Where a customer and a credit provider have agreed on a plan to bring repayments up to date on an agreement that is in arrears, and the consumer has adhered to this arrangement the credit provider cannot approach the court for a judgment on this agreement.”


How do i qualify for debt rehabilitation 

When it comes to actual debt rehabilitation time frames and circumstances, you can be rehabilitated at different times after being declared insolvent and having gone through sequestration. Generally, consumers decide to apply for rehabilitation four years after sequestration and the consumer then has the responsibility of proving they he/she is capable of providing for themselves and also prove their income and expenses. What you should know is that you will be automatically rehabilitated after 10 years has passed from the date of sequestration and that rehabilitation is not compulsory.

Usually a person who has been declared insolvent takes it upon themselves to be declared rehabilitated sooner rather than later as it has a very big impact on their lives and future financial decisions. Any insolvent consumer would like to have his or her credit worthiness restored as soon as possible so they can do things like buy a home, a family car etc.

There are actually eight different circumstances and different time frames associated with the various procedures which you can look into with the help of a debt advisor/legal professional , if you have already undergone sequestration.

Did you know that you don’t have to repay debts before applying for rehabilitation as none of your former credit providers can lay claim to debts that have gone before, since you’ve already gone through sequestration and your debt has been cleared.

“How Long will it take for my credit record to be cleared?” 

People are often worried about how information on Credit Bureaus will affect their future even after they have been cleared.  The current stance of the National Credit Regulator(NCR) is  that any negative status on credit records/bureaus  should be removed immediately as soon as a person is ‘rehabilitated’ so no longer will their listing as being insolvent, or under debt review, show on any record. What will remain though is that the consumer was ‘rehabilitated’ and this will stick to records for about 5 years.

The official definition of what a credit  bureaus is as defined by the National Credit Regulator: “Entities that:  retain and disclose for payment, personal (credit) information and receive reports or investigate credit applications, credit agreements, payment history or patterns;  compile and maintain data from reports containing the above;  issue reports based on the abovementioned data.”

The court needs to grant a rehabilitation order so the process of removing any negative comments on a consumers name from credit bureaus, can take affect.

The process  in short goes like this.  Once the court has granted the order, the registrar of the High Court must send a copy of the order to bureaus that are then under obligation to remove any negative credit information. Sometimes these bureaus fail to do just that and legal professionals usually step in to handle the issue.

The National Credit Act has declared “what information may be kept by the credit bureau, who may send information to the bureau, who may get the information from the bureau and for how long the bureau may keep the information. A consumer’s information may be personal information or credit information.”

So what information may credit bureaus keep on us?

According to the NCA:

“The Act regulates the usage of a consumer’s credit information. However, the definition of “consumer credit information” is very wide and includes almost all the consumer’s information such as:  A person’s credit history, credit agreements signed, repayment history, if the consumer is/was under debt review;  a person’s financial history, past and current income, assets and liabilities and other personal information. Education, employment and career history,  ID number, name, date of birth, physical address, marital status and contact details are also kept.”

The National Credit Regulator has constructed a useful list of information retention periods:


Once this negative mark on your credit record has been lifted, some banks might still discriminate against you, without the right to do so. Any credit provider is by law forced to treat you the same as they would any other person who was never been placed under sequestration and then rehabilitated.   Your former credit providers, who lost money in the process might however be wary of taking you on as client again.

When will you be removed from ITC?

You are not automatically removed from ITC once a debt rehabilitation order has been granted by a High Court and debt advisors/lawyers usually contact ITC Bureaus to let them know.

These bureaus may take a month to update their records. Sometimes ITC will even let you know via sms that you’ve been removed while at times the bureaus may neglect to update their records. There are then procedures one can follow to have adverse information on your credit record removed.

According to the NCA: “A consumer can complain at any time if he/she is not satisfied with the services received from a credit provider, Debt Counsellor or credit bureau.”

“ The National Credit Regulator is responsible for the receipt and investigation of complaints that relate to credit and other matters dealt with by the Act. If, however, the Regulator is of the opinion that the complaint relates to a matter that should be dealt with by another established entity, it will refer the matter to the appropriate entity.”

The National Credit Act quoted below, allows a consumer to lodge complaints with one of the following:

  • “The National Credit Regulator: A consumer may lodge a complaint with the National Credit Regulator if the complaint relates to a credit agreement.
  •  Ombudsman with jurisdiction  – Industries such as the insurance industry, the financial services industry and the banking industry etc, have an Ombudsman. An Ombudsman is an entity that is established to receive and resolve complaints and disputes in each industry. For example, complaints that relate to a bank may be lodged with the Ombudsman for Banking Services and a complaint that relates to a credit bureau may be lodged with the Credit Information Ombudsman.
  •  The National Consumer Tribunal – A consumer may lodge a complaint or dispute directly with the Tribunal; however, instances where a consumer can do this are limited to where the National Credit  Regulator has rejected the complaint  or where the consumer could not resolve the complaint through an  Ombudsman, an ADR, or the Regulator
  •  Alternative Dispute Resolution Agent (ADR)  – An ADR is an entity which attempts to resolve disputes by way of conciliation, mediation or arbitration.”

The crux of whether you are actually deemed debt rehabilitated lies in the hands of a judge, who must make the call and it’ll be the same court who issued a sequestration order, which has to then issue a rehabilitation order if you are successful.

Should any funds remain after your creditors have been paid in full, you will be able to get it back once you have been declared rehabilitated but this process may take some time as the Master of the High Courts’ offices are involved and there may be major delays.

If you are not officially rehabilitated, there is no way that you will be able to live your life the way you used to as you won’t be allowed access to new credit by any credit provider.

debt rehabilitation

A law professional/debt advisor will determine whether you may qualify for rehabilitation before an application is lodged.

An application to be rehabilitated normally succeeds when all procedures have been followed in terms of the Insolvency Act.

Did  you know that you don’t have to repay your debts before you apply for rehabilitation and if you made debt after sequestration it doesn’t form part of your insolvent estate, and you just need to pay that debt, meaning it won’t have an adverse affect.

Many debt advisors advise clients to save money after sequestration with the end-goal of undergoing the rehabilitation process sooner rather than later.

A rehabilitation order itself is not a complication matter. There will be fees that will be payable at different stages of the process, most notably a facilitation fee from a debt advisor or lawyer and also the cost of a High Court Rehabilitation Application. Most of these fees can be paid in instalments.

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