Debt administration a precarious consumer option

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“Going under administration is one of the options that government has put into place for people that are over indebted. What it means is that you can’t afford to pay your debt, you don’t have enough money to live, and therefore you’d go see an administrator or attorney and they would place you under administration,” Deborah Solomon, founder of the Debt Counselling Industry of South Africa, told CNBC Africa.

It is a fixed process that is taken though the courts for the consumers and to help the over-indebtedness of the country.”

(READ MORE: Credit amnesty could increase S.African consumer debt)

Over-indebted consumers who go under administration are protected from bank and creditor demands as a court order stipulates one’s restructuring plans. The disadvantage however is that most administrators attach a garnishee order on to one’s gross salary.

The seizure of property or assets or sequestration, can occur as a result of uncontrolled consumer debt, costing more than just a consumer’s monthly salary.

 “The difference between sequestration and administration is [that] administration is only for debt up to 50,000 rand with no tangible assets. For sequestration, it would usually be on far higher debts whereby you’ve got a bond, various cars and other unsecured debts like credit cards or loans. The debt is predominantly far higher [with sequestration],” Solomon explained.

(READ MORE: Debt a double-edges sword for consumers)

She added that there have been a number of issues with administration in the country over the past few years, despite having being introduced prior to the National Credit Act.

“The problem with administration is a lot of attorneys and administrators don’t pay the debt as they should. They take huge amounts of fees, there is a monthly cost that they charge the consumer, and it’s generally far higher than what is allowed in terms of the Magistrate’s Court Act rules,” said Solomon.

Lack of regulation among administrators is also little to non-existent, and option such as debt counselling end up being much cheaper than administration.

“In terms of administration, you have an administrator that has no regulation whatsoever other than being told that they have to abide by the magistrate court’s act and rules. Needless to say, no one regulates them, so they don’t always pay the monies over to the various credit providers,” Solomon explained.

“I think the best advice for consumers would be that they need to enforce that their administrator gives them monthly statements and actual proof of payments that are being made to their credit providers. If they don’t do that, you will never get out of debt with administration.”