So you’ve heard the dreaded term before, blacklisted, but what does it mean to be blacklisted in South Africa. In the current financial climate in South Africa, many people are under some form of financial stress. You may even have fallen behind on some of your credit payments and tried to open up an account at a clothing store and found out that you are now blacklisted.
Being blacklisted was in full effect approximately 30 years ago when a debtor only had a credit record once the debtor was under administration, declared insolvent or had judgments against him/her. Today the term is used loosely to describe a debtor’s inability to meet payment obligations to creditors.
What does it mean to be blacklisted in South Africa?
If you are blacklisted the chances that a credit provider will extend you further lines of credit is highly unlikely. Their basic reason for rejecting your credit application is that if you were unable to pay your previous debts, what guarantee is there you will be able to service this new debt if it is granted, you are what the credit provider would consider high risk and unless you get your credit history back on track you will keep struggling to get a decent paying job and any sort of future credit.
The term blacklisted is quite general and can apply to a number of situations a credit consumer would find themselves in. It could be related to having an account in arrears or possibly having a judgment against you.
What is very important for the consumer who has been blacklisted to understand is that even if you settle your outstanding debts, your credit profile is tainted with the blacklisting for at least two years in some particular cases as long as five years.
What does it mean to be in Arrears?
If you have failed to make scheduled payments and fallen behind, then your credit record will show this, but no legal action has been taken yet. At this stage, you are able to approach your credit provider and make an arrangement to settle the debt and catch up on back payments. Usually, you will have to pay some sort of administrative “fine” but it’s worth it.
If you are really sinking under debt and have a number of accounts in arrears, then it would be in your interest to contact the National Debt Mediation Association, a non-profit organization that can assist you with negotiating terms of the settlement with your existing creditors.
If you have fallen into arrears with a large asset such as a car or house, then approaching a registered debt counsellor would be smart as they can then assist in protecting your assets from seizure.
What is very important to bear in mind, is that even if you manage to pay off your debt after falling into arrears, your record will reflect the adverse information for a period of five years. What this means for the consumer applying for credit in future is that they may be seen by the credit provider as being high risk and therefore be subject to higher interest rates or stricter payment terms. Generally, a person with an adverse on their credit profile will struggle to get credit over someone who does not have one.
What does Default mean?
When your credit profile reflects you are in default, this will usually mean that your debt has been handed over to attorneys. What will be visible on your credit report is that the debt in question has been “handed over” or “written off”.
If you have a debt written off, it is usually due to the fact that the creditor feels the chances of recovery are low or the costs of recovery too high, either way, the debt is written off and this is visible on your credit report for a period of two years.
What is important to realize, if you are still being contacted by debt collectors either in person or via telephone, you still have time and an opportunity to negotiate terms to have the outstanding debt paid off. What is vital to realize, at this point, it is still not too late to turn things around and we advise that you immediately attempt to enter into an agreement to settle the outstanding debt.
At this stage in the collection process, outside parties who have been contracted by the creditor to collect the debt are expecting some form of payment too. The creditor will usually expect the full outstanding amount to be paid, however, realistically they will understand that you are a distressed client and in most cases, if you can offer to settle the outstanding principle debt, all additional fees, and interest can be negotiated away. However, the credit provider is not under any obligation to negotiate but it is worth asking for.
You should also find out if the principle debt is still with the credit provider you originally contracted with or whether the credit provider has on sold the debt to a debt collection agency. If the debt has been on sold and is now sitting “owned” by a debt collection agency, then they are looking at a quick settlement and will most likely be flexible and open to settlement options from yourself. Once again, if you do not ask, then you will never find out if settlement terms are on the table.
If you manage to settle the debt, then your credit record will reflect that the debt has been settled in full, but the adverse information will remain for a period of two years. When you settle the debt with either the original creditor or the debt collection agency, ask them for a paid up letter, which you need to submit to the credit bureaus for processing so they can update your profile. The law stipulates that they have 20 days to process and update their records and you have a right to request a copy of your record to reflect that “paid up” is reflected against the debt in question.
What is a Judgment?
Next, we shall discuss what is a judgment. A judgment is very serious as it is a legal action and it is difficult to reverse.
A judgment of a high court cannot be rescinded or removed unless it was issued in error. A high court judgment is usually for amounts in excess of R 100 000. For amounts less than R 100 000, judgments are usually issued by the magistrates’ court and these can be rescinded if you pay off the debt.
Once again even if you pay off the debt after judgment, the record will show on your credit profile for up to five years and be reflected as paid up.
Credit providers will see a judgment as very high risk and your chances of getting future credit after one has been issued are highly unlikely.
In order to have a magistrates court, rescind a judgment against you, you need to not only produce a paid up letter from either the original credit provider, but you will also need a letter from the credit provider stating that they agree to your judgment being rescinded.
Credit providers are not legally obliged to provide you with a letter consenting to you having a judgment expunged from your profile. In most of these circumstances, credit providers will refuse to provide this letter. However, it is worth asking for.
If you manage to get the judgment rescinded, then it will remain on your record for a period of five years, and the action will state that it has been rescinded.
If you have an outstanding judgment, then it will be removed from your credit profile after five years, however, it will remain active for a period of thirty years. This thirty years of activity means that a credit provider, in essence, can hold you liable for your debt for a period of thirty years!
So, bear in mind that many years may have passed since you last heard from someone demanding the debt to pay, however, the whole time interest has been added to the account, suddenly you are stuck with double the amount of the original debt. So understanding that if you have a judgment, do not think that it will suddenly go away.
Your options once you’re blacklisted
The mildest form of not meeting your payment obligations, but the easiest to overcome, is being in arrears. Skipping payments of a month or 2 will result in your credit profile being tarnished a bit as a slow payer. This can be easily resolved by paying extra on your account and avoid missing payments in the future. Some credit providers who are quite stern in the application process and might not grant you credit or would grant you less due to their understanding of you being a slow payer. Being recognized as a late payer could result in you having a default listing on your credit profile which is valid for a year.
Things can escalate if you are in arrears for longer than 3 months. Failing to pay your creditors for this long can result in your credit provider handing the matter over to their collections department. The collection agent would make contact with you to arrange some form of payment. Having a debt collection agency handle your case is even more damaging to your credit profile as you would be rejected when trying to apply for loans or a credit in the future. To avoid being hounded by debt collectors, make contact with your creditors to fill them in on your situation and they might be able to meet you halfway in solving your dilemma.
You might be advised to undergo debt review whereby a registered debt counsellor serves as a mediator, through a magistrate’s court, to negotiate on your behalf with creditors for a new repayment plan. The downfall of being under debt review is that you are limited in a number of assets that you can have. You are also forbidden to enter into credit agreements until your debt is settled.
Another form of having a third party involved in negotiating your debt repayments is to be under administration. This process involves having lawyers distribute your money to your creditors every 3 months. However, choosing to undergo administration can prolong the settlement of your debt as the majority of your income pays for their fees and legal costs.
If you refuse to cooperate with the collections department or agency your credit profile will be stained for 2 years by a default listing. You will be sent a final letter of demand to settle your accounts. Credit providers will reject any application for credit such as accounts or loans. This type of default listing could make it impossible for you to send your child to a decent school because most private schools do credit profile checks to ascertain the affordability of the parent. Getting a nice apartment to rent will also be a challenge while being on a default listing. This not only affects your lifestyle but hurts your finances deeply because your outstanding debt only accumulates by the addition of legal fees, collection fees and interest.
After the final letter of demand has been sent and you still make no effort to resolve your debt situation, your creditors will issue a summons by taking a judgement against you. This judgement makes it possible for your creditor to get the court to grant a garnishee order on your employer to arrange that a portion of your salary contributes to settling the debt.
If you are unemployed, a sheriff can produce a writ of execution to write up all your movable possessions. The sheriff can, by all means, have those possessions removed at a later stage after failing to make payments. Your possessions will be auctioned off and the proceeds will be used to settle your debt. However, your goods will be sold for a fraction of its worth and you would run at a major loss while probably still owing your creditors a balance. This results in a sequestration order being taken out against you which declares that your liabilities exceed your assets. A judgement against you will remain on your credit profile for 5 years but under the court of law for 30 years.
These scenarios have devastating consequences to your life. Having a bad credit profile can even ruin your chances of becoming employed. Many companies run background checks on candidates and require future employees to have a positive credit profile. They would not accept candidates who have been through any of the scenarios mentioned. The inability to keep up with payments shows that the candidate lacks commitment and is not trustworthy. Also, employers try to prevent being approached by credit providers if the candidate fails to make payments.
Another downfall of having a poor credit profile is the struggle that you will face to get any sort of financing in the future. Whether its vehicle financing or a home loan; credit providers would not consider your application if you have been contacted by a debt collector, been placed under debt review or administration or have a judgement against you. These types of financing have long repayment terms, therefore, credit providers would not risk borrowing such high amounts to an individual with a tainted credit profile.
Prevention is better than cure
Monitoring your finances with a budget will help you predict if you might fall behind on payments or cannot keep up with your financial obligations. Communication is key to avoid having your finances and your life spiralling out of control. Maintain contact with your credit providers and inform them of any changes that affect your agreement.
Most people get labelled as blacklisted because they failed to make contact with creditors and ignored communication from debt collectors. Ignoring the issue will not make the problem disappear but only make matters worse. There are ways to deal with these kinds of situations and it requires honesty and communication.
Avoid being blacklisted
If you’re feeling overwhelmed by your current financial situation, feel free to contact us. To Speak to one our consultants about debt review contact us here.