Debt Prescription

 

The Consumer’s guide to understanding Prescription of Debt

-by Johan Smith (Debt Counsellor)

 

If you’ve been contacted by a collection agency to repay an old debt from years ago, you might want to pay attention.

We’ve put together an easy to understand guide for the average person to help you understand your rights and responsibilities when it comes to repaying old accounts.

Do you still have to pay the debt? Should you believe the collection agent? Beware of tactics employed by collection agents.

They might say you should make a small payment, even if it’s R50 to stop the account from going to court, this may be true sometimes, but it could also be a tactic to prevent the old debt from prescribing or reinstituting a debt that have already prescribed. They might also forward you a form to sign as part of a payment arrangement.

 

1. What is Prescription of Debt?

Prescription of Debt means that the debt is no longer payable, it is written off. If anyone takes you to court you can claim prescription as a defense and the matter will be thrown out, provided that the debt has actually prescribed.

Prescription of debt is mostly defined in the Prescription Act, 68 of 1969.

 

2. Not all debts are created equal

For the purpose of this article we will focus on the types of Debt ordinary South Africans will be more inclined to face.

These include:

• Debt in terms of a contract, such as a credit agreement.
• Judgment Debts
• Debts owed to government like Income tax or municipal rates & taxes

 

3. How does prescription work exactly?

Think of a countdown clock on a stopwatch. The timer is set to run out a specific amount of time. You can:

1. Let the time run out.
2. Pause the clock to resume the countdown later.
3. Or reset the clock to the original time.

The time left on the clock is the amount of time during which you are liable to pay the debt. It is also the amount of time a creditor has to collect his debt from you. When the clock runs out, the debt is written off.

The prescription clock starts ticking the moment the debt is due.

 

4. Underneath you will find a simplified illustration to help you check if your debt may have prescribed or not.

 

Type of Debt	Time before prescription	Events that will pause prescription	Events that will reset prescription
Contractual	3 years	You leave the Country	You make any payment
Examples		When you are still a minor	towards the Debt
Unsecured Loans		You are declared insane
Professional Fees		Debt is disputed under Arbitration	You acknowledge the
Revolving Credit		Your creditor is your partner	Debt in writing any time
Vehicle Finance			during the 3 year period
Home Loans	30 years	You leave the Country	You make any payment
		When you are still a minor	towards the Debt
		You are declared insane
		Debt is disputed under Arbitration	You acknowledge the
		Your creditor is your partner	Debt in writing any time
			during the 30 year period
Other Liabilities	3 years	You remain a member	You make any payment
Examples		of the organization	towards the Debt
Levies payable to body corporate		You leave the Country
School Fees		When you are still a minor	You acknowledge the
		You are declared insane	Debt in writing any time
		Debt is disputed under Arbitration	during the 3 year period
		Your creditor is your partner
Judgment Debt	30 years	You leave the Country	You make any payment
Examples		When you are still a minor	towards the Debt
Garnishee Orders		You are declared insane
(Emoluments Attachment Orders		Debt is disputed under Arbitration	You acknowledge the
Administration Orders		Your creditor is your partner	Debt in writing any time
Any other debt where			during the 30 year period
a Court have granted
a Judgment against you
to pay the creditor
Debts owed to Government	30 years	You leave the Country	You make any payment
Examples		When you are still a minor	towards the Debt
Income Tax		You are declared insane
Municipal rates & taxes		Debt is disputed under Arbitration	You acknowledge the
		Your creditor is your partner	Debt in writing any time
			during the 30 year period

 

5. Examples

Scenario 1

You take a loan from a credit provider, your first payment is due on the 1^st of June 2016. None of the events take place that would halt or reset prescription. On the 1^st of June 2019, your debt has prescribed and you do not owe anything anymore.

Scenario 2

You take a loan from a credit provider, your first payment is due on the 1^st of June 2016, on the 1^st of June 2018 you make a payment of R50 towards the debt. The clock resets on the day you make the R50 payment and prescription will now only occur on the 2nd of June 2021 provided (a)you don’t pay again,(b) you don’t sign another confirmation that you owe the money or (c) the debt doesn’t change to a Judgment Debt.

Scenario 3

You take a loan from a credit provider, your first installment is due on the 1^st of June 2016, you make regular payments until the 1^st of August 2016, prescription clock starts and the debt would prescribe on the 2^nd of August 2019, BUT, the credit provider takes legal action against you and summons you to court on the 1^st of May 2017, Judgment is granted against you by the Magistrate on the 1^st of June 2017. The type of debt have now changed to Judgment debt and the prescription clock changes to 30 years instead of 3. The debt will now prescribe on the 2^nd of June 2047.

 

6. Conclusion

Judgment Debt carries a prescription time of 30 years. Never allow accounts to be handed over. If you do receive a summons, do not ignore it. Attorneys will add thousands of Rands in legal costs to the account and you will be charged a 10% collection fee for every payment you make to the Attorney. Get assistance from a professional Debt Counsellor in time.

Government debts carry a 30 year prescription period. If you haven’t received or paid your municipal account in a long time, make sure you get the outstanding balance and get it paid. Theoretically, you could ignore the account and not hear a word from the Municipality for 29 years and then receive an outstanding balance of hundreds of thousands of Rands! They can then proceed with Judgment steps and even auction your house.

Repaying your outstanding debt is the right thing to do, however if you find yourself in a position like so many others where you are unable to make the required payments on a regular basis, consider getting professional help. If you apply for Debt Counselling (Debt Review) with us. Your Debt Counsellor will investigate for possible prescription on your accounts as a standard part of our service.

We can assist you nationally, just leave us a message at the bottom of the page and we will get back to you.

Disclaimer

Although the facts contained in this article have been researched and are true and correct, the article is not exhaustive of all factors and conditions and laws regulating the possible prescription of debt. The article is a public interest article and not intended as or in any way a substitute for legal advice and readers are strongly advised to seek out the services of a qualified professional to dispense advise on their specific situation or for any other purpose they might decide to use the information contained herein before they take any action or lack thereof.