Debt that a debtor is no longer obliged to pay off
In South Africa, the term ‘prescription debt’ refers to old or expired debt, i.e. debt that a debtor is no longer obliged to pay off because it had not been acknowledged over a specified period.
The purpose of prescription is to make sure that credit providers and debt collectors can collect the money owed to them within a certain period. This helps prevent them from waiting too long to recover the funds, which can cause the debt to accumulate a lot of interest and costs.
If a credit provider doesn't ask you for payment, take legal action against you, or communicate with you in any way within a certain period, the debt becomes "prescribed." This means that the debt is basically cancelled, and the credit provider can no longer demand payment from you.
Unfortunately, some debt collectors take advantage of this type of debt because it's difficult for creditors to recover. When they collect prescribed debt, they can earn a higher return on investment because they can add the interest, recovery costs, legal fees, and other expenses to the outstanding debt amount.
What does the law say?
The National Credit Amendment Act, published 13 March 2015, prohibits the sale and collection of prescribed debt.
In addition, the Prescription Act 68 of 1969, which was enacted in South Africa in 1968, enforces the regulation of prescription and states that debt can be considered as prescribed if the following requirements occur:
A credit provider has not claimed payment, sent a letter of demand or issued a summons.
UA consumer has not made any payments or acknowledged the debt directly or indirectly for the time periods specified below:
Personal loans, PAY-DAY loans, Telkom accounts, credit cards, retail accounts, and vehicle loans - 3 years
Mortgage loans, TV Licenses, judgement debts by court orders and money owed to the South African Revenue Service (SARS) - 30 years
This, in combination with a healthy credit score, will pave the way for a more prosperous future and allow you to enter into new credit agreements if you need to do so in future. Besides – there is a certain kind of pride and joy associated with finishing something that you started. It’s a confidence booster of note!
What are my rights in terms of prescribed debt?
If a debt has been dormant for the specified period, a debt collector cannot ask you for payment. It is against the law if they do.
If you suspect that someone is harassing you and demanding payment from you on a prescribed debt, raise prescription as a defense and refuse to make payment until the debt collector provides evidence that the debt is not prescribed.
When does prescribed debt not apply?
The credit provider can provide reasonable evidence that they tried to contact you during the prescription period.
You acknowledge the debt, or make a 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.