It is the procedure by which a debt collector seeks to recover debts owed by individuals or businesses after they fail to make payments.
When Does this Happen?
Once a debtor fails, neglects, or refuses to pay the outstanding debt in accordance with the terms of the debtor-creditor agreement, the debtor will be in default.
If a debtor is in default for more than 20 (twenty) business days, the creditor must provide written notice of such default to the debtor before proceeding with legal action.
To properly recover the debt, various rules and regulations must be followed. The steps for carrying out debt collection are outlined as follows:
Step 1: Making a Courteous Call
The debt collector should make a friendly phone call to the debtor in question and advise them in writing that their case has been formally assigned to solicitors or other debt collection experts. It is vital to emphasise that the debtor must be properly notified of the outstanding debt(s), and should they make payment with immediate effect, no legal costs shall be incurred.
However, if the debtor fails to make such payment, the debt collector shall move onto the step in the process.
Step 2: Letter of Demand
This step entails drafting and serving a formal Letter of Demand (LOD) to the debtor, informing them of the amount sought and how it was determined. The LOD acts as a final opportunity for the debtor to make payment and avoid litigation costs.
It is also very necessary at this point to understand the doctrine of prescription.
Doctrine of prescription
In terms of section 11 of the Prescription Act 68 of 1969, some debts expire after 3 years from their initial due date, whilst others, such as debts secured by way of mortgage bonds and other security loans, expire after 30 years.
Step 3: Summons and Judgment
At this point, if no attempts have been made to settle the outstanding debt, the sheriff shall serve the debtor with a summons, at their registered place of address. Thereafter, the debtor will have 10 (ten) court days to respond to this summons, declaring whether they intend to defend the matter or not.
Should the debtor fail to serve their Notice of Intention to Defend, a default judgement will be issued against them. Thus, implying that a decision has been made in favor of the creditor without hearing the debtor’s version of events.
Alternatively, if the debtor submits such a Notice to defend, the matter will proceed to trial.
Step 4: Implementing the Debt Collection
Once the judgement has been granted in favor of the creditor and the debtor is aware of such outcome, the debt collection procedure is initiated, following the next four phases focused at collecting the debt –
Issuing a warrant of execution: such a warrant is issued against the debtor’s moveable property, and the sheriff is lawfully permitted to proceed to the debtor’s property and attach the goods, after which the property will be sold in a sale of execution to recover the sum owing.
Section 65 proceedings: if the profits from the sale in execution are insufficient to recover all of the debts owing, the debt collection is transferred to section 65 procedures. This requires the debtor to justify why payment of the debt cannot be made.
Following such a declaration, a competent court may subsequently, by a court order –
(a) order the debtor to pay the debt off in instalments;
(b) order the debtor’s employer to deduct an amount from their monthly salary in order to pay off the debt.
(c) furnish a Garnishee order instructing the debtor’s bank to pay the unpaid balance directly from the debtor’s accounts to the creditor.
Should all else fail, and the collection of debt proves to be unsuccessful, an application can be filed to sell the debtor’s immovable property in an attempt to reclaim the full debt owing. This is only used as a last resort.