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Understanding debt collection

Like the difference between a garnishee and emolument attachment order.

JOHANNESBURG – A garnishee order is not the same as an emolument attachment order (EAO), while both differ from administration orders. Confused already? Here’s a helpful guide to understanding debt collection.

Emolument attachment orders

An EAO is the most common legal method of collecting on outstanding debt by attaching a portion of a debtor’s salary each month. EAOs are regulated by the Magistrates’ Court Act (MCA) and can be obtained once a judgment has been obtained against a debtor – i.e. a ruling that orders the debtor to repay outstanding debt. The judgment can either be obtained via a consent to judgment signed by the debtor or via a default judgement, where the debtor receives a summons and then takes no action to defend the matter.

EAOs are served on employers who are obligated to make the necessary deductions from their employees’ salaries. The confusion with garnishee orders arises because the employer is referred to as the “garnishee”.

Garnishee orders

Garnishee orders authorise creditors to attach a debt owed, or which will become due, to the debtor by a third-party (excluding the State). For example, if you’re an estate agent, your creditor could attach a commission owed to you. This is usually a once-off deduction or done until a judgement is satisfied.

Debt review

Another term for debt restructuring or debt counselling, debtors can approach a debt counsellor to be placed under debt review. Debt counsellors then negotiate with creditors for a reduction in interest on the outstanding debt, an extended term of repayment and lower monthly instalments. Debt counselling is only valid for credit granted under the National Credit Act (NCA), which would include home loans, vehicle finance and unsecured loans.

Even where all credit providers agree to the new arrangement, a consent order must be obtained in a magistrates’ court or via the National Consumer Tribunal. If any one of the credit providers do not accept the revised payment plan the matter is referred to the magistrates’ court for a decision.

Administration orders

Like debt review, an administration order is obtained on the instruction of a consumer and not a credit provider. It is limited to outstanding debts of not more than R50 000 and fees are restricted to 12.5% of payments. Administrators distribute a debtor’s monthly payments to creditors on a quarterly basis.

As with debt review, once a debtor is under administration they are protected from any legal action by credit providers, as long as they make regular payment to the administrator as per an order of court. Administration orders may be used for things like municipal accounts, medical bills, school fees and other credit exposure that does not fall under the NCA.

Administrators do not have to register with a regulatory body, unless they are attorneys registered with the law society, so there is limited oversight and therefore potential for abuse.

Execution

Used as an alternative to an EAO, execution is where a debtor’s movables (like furniture) and eventually immovable assets (like a house) are attached. “I’m not sure how viable execution is. The removal and storage of movable assets incur costs, while assets belonging to the debtor are sold often at very low prices on auction, so the debtor loses everything and the creditor gets very little back,” comments Frans Haupt, director of the University of Pretoria Law Clinic.

Voluntary surrender

A debtor can apply for voluntary surrender of his or her estate. “Unlike administration orders and debt review, where everything must be repaid, what creditors do not get from my estate when I’m placed under voluntary surrender, they cannot later recover,” Haupt explains.

In order to apply for voluntary surrender, you have to show an “advantage” to your creditors, i.e. in practice the ability to repay at least 20% of what you owe to concurrent (unsecured) creditors. The rest of the debt is written off. Unfortunately, Haupt says, rich over-indebted people may use voluntary surrender as a means of paying back only 20c in the rand, for example, while poor people have no option but to use debt review or administration and repay everything owed.

Sequestration

This is similar to voluntary surrender (or liquidation in the case of companies), except that the credit provider applies to have your estate sequestrated. “Creditors that have issued secured loans, like mortgages, get preference above unsecured creditors, which hold no security. These creditors will get what remains of the estate on a pro rata basis and the balance is written off,” Haupt explains.

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