Articles

can debt review stop litigation against a debtor?

by Ashley Curran - Posted 15 January 2010

Not only has the economic downturn influenced more and more people to turn towards the process of debt review as a solution to their financially precarious circumstances but it has also resulted in an upswing in the amount of disputes between people and businesses.

The recent decision of Mercedes Benz Financial Services SA (Pty) Ltd v Viljoen once again deals with the relationship between debt review and the institution of legal proceedings against a debtor.

In Mercedes Benz Financial Services SA (Pty) Ltd v Viljoen, Mrs. Viljoen purchased a Mercedes Benz C320 CDI Elegance from Mercedes Benz in terms of an instalment agreement. Mrs. Viljoen was unable to keep up with her monthly instalments and quickly fell into arrears.

Mercedes Benz Financial Services sent Mrs. Viljoen a letter advising her of the arrears and demanding payment of the outstanding balance (in terms of the National Credit Act this is referred to as a s129 letter which must be sent to a consumer before a creditor can enforce the debt in court).

Mrs. Viljoen failed to make payment as demanded and Mercedes Benz Financial Services cancelled the agreement and claimed the return of the vehicle. Mrs. Viljoen tried to rely on the defence that she had applied for debt review in terms of the National Credit Act.

The Court re- iterated that a debtor’s application for debt review does not apply to a credit agreement where the credit provider has already sent a s 129 letter to the consumer before the consumer applies for a debt review. In such instance the credit provider is not precluded from instituting legal action against the consumer.

Mercedes Benz Financial Services sent the s 129 letter to Mrs. Viljoen before she applied for debt review thus, she was ordered to return the vehicle.

Contrary to the popular belief that an application for debt review delays or even eliminates the threat of impending litigation; the abovementioned case and the National Credit Act makes it clear that such an application does not automatically preclude the institution of legal proceedings.