Many South Africans drowning in debt could be thrown a potential lifeline following a study by North-West University (NWU) master’s degree graduate Paballo Mothibi into the discharging (cancelling) of the debts of those who have no income or assets.

The topic of the study is “Alternative measures for the discharge of debts for over-indebted persons under debt-related legislation in South Africa”.

The study discusses the problems over-indebted persons face in accessing adequate debt discharge in South Africa. Furthermore, it investigates how the country’s debt-related legislation limits the chances of these people to discharge their debts.

Paballo says the issue facing over-indebted natural person debtors in South Africa is not that there are no debt discharge measures available. It is that existing measures under the Insolvency Act – the primary legislation that provides for the formal, statutory discharge of debts – exclude many from obtaining debt discharge. If they do not meet the requirements of the Insolvency Act, they cannot qualify for debt discharge.

“Most of these excluded debtors fall within the no income and no assets (NINA) category,” says Paballo.

Adding to the problem is that other debt-related legislation either does not provide for comprehensive discharge of debt or provides no discharge at all.

In terms of the National Credit Act or administration orders in terms of the Magistrates' Courts Act, over-indebted individuals can make use of debt review to circumvent the sequestration process. However, neither the debt review nor administration orders provide for a discharge of debt, but only for debt restructuring to eventually satisfy creditors.

Paballo therefore proposes comprehensive reforms of the current debt discharge measures under the Magistrates’ Courts Act, National Credit Act, National Credit Amendment Act, Consumer Protection Act, Debt Collectors Act, Prescription Act and Financial Sector Regulation Act.

Paballo recommends that the National Credit Amendment Act should provide a debt discharge mechanism for debtors who are unable to meet the requirements of sequestration orders in terms of the Insolvency Act.

This research is timely and highlights what is required to fill the gap in current legislation to assist the growing numbers of debtors.

Paballo Mothibi.