CDA

10 THINGS TO KNOW ABOUT DEBT ADMINISTRATION

1. WHAT HAPPENS FIRST

Debt Administrator’s information can be found on the Internet. You qualify for administration only if your debt is less than R50 000. Take along proof of income when you see a debt administrator. They’ll draw up a repayment plan that reduces your monthly payments to make your debts affordable and negotiate the plan none your behalf with your creditors. You’ll have to allocate a portion of your income to the debt administrator for repayment of the debt because they pay your creditors directly on your behalf.

2. THE COST OF APPLICATION

The administration must be made a court order. The administrator will arrange the application for you. The application fees depend on the number of your creditors, not the total amount of your debt. For example, if you have fewer than 10 creditors, the fee-which includes the instruction fee as well as fees for checking claims and drawing up income and expenditure sheets and all correspondence- could be R129. If you have more than 10 creditors, this amount could be R182. The fees can vary from one administrator to one another. Attorney fees vary too. The application fees are usually not payable upfront but is recovered from your payments before money is paid out to your creditors.

3. THE COURT ORDER

In terms of the court order the interest on your debt will decrease to a standard of rate of 15,5%. While you’re under administration your creditors can’t take illegal action against you. But you also not allowed to run up any new debt.

4. YOUR INCOME

The court order will state that a portion of your income be hand over to the administrator, who pays your creditors while you keep a portion for basic living expenses. Your employer will be instructed to pay the debt-repayment portion of your salary directly into the administrator’s trust account. This will happen for the duration of your debt administration.

5. PAYMENTS

• Creditors are paid every three months, so the portion of your salary that’s paid to the paid to the administrator monthly is accumulated and paid over to your creditors once every quarter. Remember, although your monthly payments are reduced by administration, you eventually still pay off the total

6. THERE’S A RECURRING ADMINISTRATOR’S FEE

This can add up over time, so the longer you take to pay off your debt, the more you’ll pay in administrator’s fees. Administrators can charge a maximum of 12.5% of whatever the quarterly amount is that’s paid over to creditors. On top of this, some charge a quarterly transfer fee-an amount that they determine for transferring the money to your creditors.

7. WHAT YOU HAVE TO DO

Ensure the administrator does their duty. Ask for proof of all the payments you’ve made, as well as proof of payment to your creditors. Administrators should issue a balance sheet every three months to show what money they’ve received, the amounts paid over to creditors and the expenses that were deducted. You’re allowed to phone your creditors to check they’ve received the payments reflected in such statement (also called a distribution account).

8. THINGS TO WATCH OUT FOR

Debt administration can carry on until all your debt has been paid off. Because there’s no time limit, it can take as long as 10 years to pay off all your debt. That means you’ll be paying interest and fees the entire time, which means its expensive debt. The only way for an administration order to end is to apply to a court to have it set aside. Debt administrators have to be registered with the magistrate’s court in the district in which they operate but aren’t bound by the National Credit Regulator (NCR). That means some of them charge more than the maximum 12.5%. Make sure everything is clearly stipulated in writing before you sign any administration agreement. You can contact your local magistrate’s court for a list of registered administrators and you’re allowed to ask which ones have a good record with the court.

9. PAY YOUR DEBT IN THE SHORTEST TIME

Pay the largest possible monthly amount you can afford. That way you’ll save on interest and fees. If you can, offer a portion of your annual bonus with which the administrator can make a “final full offer” on a few of your credit agreements. Creditors are often accommodating in such cases and prefer a smaller amount to be paid immediately rather than four annual payments.

10. WHAT YOUR DEBT OPTIONS ARE

Many people opt for debt administration because they don’t know of any other options-they think it’s their only choice. If you’re unsure which debt solutions is best for you, contact the NCR (ncr.org.za). The websites also list debt counsellors you can contact (see last week’s Your Money for more about debt counselling). The counsellor will help you choose the best option, and advise you on whether administration or sequestration is your best route. You can also consult a financial adviser (fpi.co.za and fia.org.za) who’ll help you with budget management. You might not even need debt administration if you’re able to manage your budget well.

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