Anyone’s financial situation can change overnight. It is nothing out of the ordinary for unforeseen crises (like retrenchment, divorce, life-threatening illness or an emergency) to occur. This can make it difficult to pay your debt instalments.
Wikus Olivier, a debt management expert at DebtSafe has some advice about voluntary surrender, as opposed to repossession.
Olivier says these are the two things that you can get confronted with if you can’t pay for the goods that you have bought on credit.
1. Voluntary surrender
When you surrender your house, goods or car voluntarily, it can be a show of good faith. Voluntary surrender consists of two things. Firstly, you are either already behind with your payments and want to give back the goods, your home or vehicle, for example. Secondly, your payments are not in arrears but you want to give back your car, goods or house as you know you won’t be able to keep up with the necessary payments in the future.
Voluntary surrender if your payments are up to date
If you know you won’t be able to keep up with your monthly payments, Section 127 of the National Credit Act states that you can give a written notice to the credit provider indicating that you want to return the goods. Within five business days you must voluntarily surrender the goods to the credit provider’s place of business or any other place as agreed upon with the credit provider.
Within 10 business days after receiving the notice, the credit provider must give you an evaluation in the form of a written notice, setting out the estimated value of the goods. The credit provider will typically sell the vehicle or house at an auction. There are no guarantees that they will be able to sell it for what you still owe on it. You are therefore held accountable to pay the shortfall after the sale. If they sell it for more than what you owe them, the creditor must pay the difference over to you.
If, however, you are unhappy with the value given by the creditor, you can withdraw the notice that you have sent to the credit provider and resume possession of the goods. Alternatively, you can sell your car or home privately and get a better price than they would have been able to get at an auction or via a dealership’s sale.
Olivier suggests that you should talk to the creditor first to see if your term cannot be extended instead, which will reduce your monthly instalment. With an extended term there is usually also a better interest rate. “Consider this option and don’t forget to ask your creditor about this,”says Olivier.
Voluntary surrender if your payments are in arrears
If you are behind with your payments or instalments you can choose to make use of Section 127 of the National Credit Act that refers to “Surrender of goods”. There is, unfortunately, no way out after signing a voluntary agreement, unless you bring your payments up to date.
Voluntary surrender pitfalls
According to Olivier, many credit providers prefer this process to get back the asset. However, consumers need to be aware that they are under no obligation to give it up. If the creditor hands over a form or document and it is not a court order, it is most likely an agreement to voluntarily surrender the asset.
“Don’t give into people’s threats when they want to take possession of your goods,” says Olivier. Some creditors mislead consumers into thinking that it is a repossession situation, but in actual fact it is only a form that the creditors want you to sign to voluntary surrender an asset (a car, house or goods) they want to take back. If your payments are up to date when you sign a form, and you voluntarily surrender your goods, you may unconditionally withdraw the notice you signed. Unfortunately, in contrast to this, there is no way out after signing a voluntary agreement if you are in arrears with your instalment.
Repossession is a statutory process that can have a negative effect on your credit score and future credit applications. A legal repossession is always preceded by a court order. Let’s say your creditor does not want to negotiate with you and rather gets a court order for the repossession of your goods, for example, a summons has to be served on you. You then have the opportunity to present your case in court.
For many people going to court is a terrifying ordeal, and they have a tendency not to attend. But Olivier highlights that if the consumer does not appear in court, the creditor can get the court to make a judgement in their favour. On the other hand, if the consumer does go to court, he or she is then able to present his or her defence. Olivier suggests that you get a lawyer to oppose the case against you.
Olivier says these two ‘routes’ cannot be taken lightly, and he therefore suggests a better, alternative way that can assist you in keeping your belongings, namely debt counselling. As soon as you are under debt review, you are protected from your creditors. And through debt counselling, consumers are given enough breathing space to pay off their necessary debts, and to also continue with the important things in their life. Not to mention the clean credit record they are able to walk away with in future.