What is prescribed debt & how does it work?
One of the credit services we provide at Libertine Consultants is credit clearance. This often includes helping our clients clear prescribed debt from their credit records. But what exactly is prescribed debt, when does it apply, and does it really mean you don’t have to pay an outstanding debt?
Prescribed debt defined
In short, prescribed debt is old debt that has not been acknowledged over a period of three years. If a credit provider does not demand payment from you, start legal action against you or communicate with you in any way for three years, a debt becomes prescribed. That means the debt is essentially cancelled and the credit provider loses his right to claim payment on the debt ever again. For this to be applicable, you must NOT have:
Been summoned to make a payment by a creditor for the debt within the past three consecutive years. Acknowledged the debt in the past three consecutive years, either in writing or verbally. Made a payment or promised to make a payment to the outstanding debt amount, from when the debt was due or since the date of your last instalment. Your debt has prescribed and your creditor may not harass you for payment.
The law that refers is: Prescription Act 68 of 1969, section 10 (1). This rule is in place to protect consumers against unreasonable interest as well as accumulating fees of creditors and/or collectors. It ensures that creditors who want to collect, will do so in a timely and decent manner.
The National Credit Amendment Act, of 13 March 2015, prohibits the sale and collection of prescribed debt. As such, you do not need to know about prescription and you don't have to raise prescription as a defence, to avoid paying the debt.
Which debts can prescribe?
The following debt CAN prescribe: Retail accounts Credit card accounts Telkom accounts Personal Loans / Pay-day Loans Gym memberships Cell phone accounts Monies owed on vehicle finance
The following debt CANNOT prescribe: Home loans Municipal accounts Money owed to SARS TV Licenses Judgements against you A 30-year prescription period applies to these accounts.
When does prescription not apply?
Prescription will not apply if - The credit provider can provide reasonable evidence that they tried to contact you during the prescription period You acknowledge the debt, or make payment on the debt The creditor takes legal action against you You are residing outside South Africa You are married to, or business partners with, the credit provider.
Credit providers and debt collectors will always attempt to collect prescribed debt!
Amendments to the National Credit Act in 2015 makes it clear that it is unlawful for credit providers or debt collectors to collect prescribed debt. When a credit provider sells their prescribed debts to a debt collector, the collector will contact you, demanding payment. Unscrupulous debt collectors take over this type of debt specifically because it is so difficult for creditors to recover. For the collector, there is a higher return on investment when collecting because interest, recovery costs, legal fees, etc. are all added onto the outstanding debt amount.
Be warned: Collectors will always try to collect, in spite of the restrictions placed on them by the law. They will try to find loopholes and ways around the restrictions. In this way they are undermining the rights of the consumer, by preying on the consumer's ignorance regarding the law.
Because debt collectors collect for their own account, they will counter claims of prescription in any way possible. Agents will simply state that your information is not correct and that you will have to pay. Others will take the high road, confusing you with legalese: 'A claim of prescription will not exonerate you from the debt'.
The truth is that once a debt has been prescribed, it is not merely dormant, it has been completely extinguished! (Except – as mentioned above - if payment or acknowledgement of debt interrupts prescription.)
What are my rights?
If a debt has been dormant for three or more years, a debt collector cannot ask you for payment. It is against the law if they do.
The National Credit Amendment Act, published 13 March 2015, prohibits the sale and collection of prescribed debt.
If you suspect that someone is harassing you and demanding payment from you on a prescribed debt, raise prescription as a defence and refuse to make payment until the debt collector provides evidence that the debt is not prescribed. Put your communication with them on record by writing them an email or a letter to confirm that you have requested them to stop the harassment or provide proof that the debt is NOT prescribed. They must provide you with the original loan agreement/contract, proof of default, the outstanding amount and interest and costs accrued. They must also provide reasonable evidence of attempts to contact you during the past 3 years.
Sign nothing, pay nothing, acknowledge nothing. Your only reply should be, ‘Prescription applies!’ If you are not sure, get advice on the matter from Libertine Consultants before you do anything.
How Libertine Consultants can help
If you are being harassed by debt collectors regarding prescribed debt, we can get it removed on your behalf. The service comes with a fee, but it's worth it when you know it has been properly dealt with and cannot come to haunt you again.
We start by investigating the status of the account with the credit provider. If the debt in question does indeed qualify for prescription, we request the prescribed letter from the creditor.
When we have the prescribed letter, we will log a dispute with all four South African credit bureaus on your behalf, to have the debt removed from your credit record. You will be free and clear within 21 working days!
Get in touch to learn more about prescribed debt and how we can help you regain your financial freedom and help you on your way to a prosperous future!
