Personal-Finance

Are you responsible for your debt if the lender goes bust?

2018-10-02 06:42

Things are about to become more difficult as South Africa heads into a technical recession. And there doesn’t appear to be a respite in sight for anything at this stage. Petrol prices are going to increase, yet again, and will have a further impact on the prices of food and travel and other things.

It will be tempting to turn to debt to bail youself out of tricky situations, particularly unsecured forms of credit like personal loans, store cards and credit card debt. But this can all add up and drive you further into debt, to the extent that debt collectors come knocking or call you incessantly.

However, during a recession it is not only the indebted who find it difficult to stay out of the red. Lenders may find also themselves stretched to the limits when some customers are not able to make their repayments. In such circumstances the lenders can go bust.

Will you be responsible for your debt if the lender goes bust?

When it comes to loans, many of us wish it would just go away in a puff of smoke, particularly if we have difficulties servicing that credit. You may believe you have been granted your wish if your lender goes out of business.

It is possible for a financial institution to run into difficulties, particularly during times of recession when growth is slow.

Back in 2014, African Bank was put under curatorship by the SA Reserve Bank, a move that surprised consumers and industry players.

African Bank’s clients were still accountable for their debt.

“Your liability for the debt does not cease just because the financer goes bankrupt. In any event, the liquidators of the credit provider or bank/company would identify the creditors of the company and ensure that debt repayments would continue.

“It would be highly unlikely for anyone to get away with a debt in these circumstances,” says David Crossley, certified financial planner and business manager at BDO Wealth Advisors.

Can you rely on prescription?

Prescription debt is old debt that has not been acknowledged over a period of three years. According to DebtBusters, a debt is prescribed if:

. You have not acknowledged the debt in the past three consecutive years either in writing or verbally.

. You have not made a payment or promised to make a payment on the outstanding debt amount.

. You have not been summoned to make a payment by the creditor within the past three consecutive years.

If a lender goes bust, it may have its own problems to contend with, and you may believe if you ignore your debt perhaps it will ignore you and your loan will eventually become prescribed.

Crossley warns that this “strategy” should not be relied upon.

“Debts only become prescribed after a period of three years from the last notification to the person owing the money.

“Liquidators are likely to reintroduce the notification, in other words interrupt the prescription period, even if this falls outside the prescription period, in which case the person owing can raise a defence of prescription. This could entail lengthy and costly litigation with liquidators who will have a legal team on hand to fight the defence. Just pay what you owe and don’t try and be clever is what I would advise!” Crossley says.

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October 21 2018