What Happens If I Fail to Complete Debt Review?

Debt review is a financial management process designed to help people struggling with debt by restructuring their payment terms, lowering interest rates, and offering protection from legal action. The aim is to get consumers back on track and eventually debt-free. 

However, life doesn’t always go as planned, and some individuals may find themselves unable to complete the debt review process. What many may not realise is that individuals will remain under debt review even if they stop making payments. 

Let’s explore the consequences and what you can do to avoid falling into this situation.

1. Legal Consequences: Creditors May Take Legal Action

One of the main benefits of being under debt review is protection from creditors. While you are in debt review, creditors are legally prohibited from taking legal action against you, such as garnishing your wages or repossessing your property. However, if you fail to complete the debt review process, you may lose this protection.

• Court judgments: If creditors take you to court and win, they can obtain a judgment against you, which can be recorded on your credit report for up to 10 years.
• Wage garnishment: Creditors may be able to garnish your wages directly, meaning a portion of your salary is taken each month to pay off your debts.
• Repossession: If you have assets tied to your debts (such as a car or home), creditors may be able to take legal action to seize and sell them.

2. Impact on Your Credit Record

Failure to complete the debt review process can significantly impact your credit score. As long as you remain under debt review, your credit report should show that you are taking steps to address your financial situation responsibly. 

Note that you can not exit debt review by just not making payments or sending a message that you want to cancel. If you do this, you will still have the debt review flag on your name, and will not be able to make more debt. The only way to “exit” is to receive a clearance certificate.  

There are, however, special circumstances. Therefore, you must communicate properly with your debt counsellor the reason you’re struggling to comply. Your debt counsellor has the authority to talk to the creditors and see if help can be given. 

• Negative credit reporting: Having this flag against your name can lower your credit score, making it harder to get approved for loans or credit cards in the future.
• Record of default: If your creditors resume collection efforts and you do not manage to reach a settlement, you may face being listed as a defaulter, which can severely damage your financial reputation.

3. Unpaid Debts Will Accumulate Again

While under debt review, your debts are restructured to make payments more manageable. Stopping making payments will cause creditors to terminate the new agreement negotiated, and fall back on the original agreement with high interest rates.

• Late fees: Creditors may apply late fees for missed payments, which will further increase your debt.
• Compounding debt: As interest and penalties accrue, your outstanding balance can grow, making it harder to get out of debt in the future.

4. Increased Stress and Financial Pressure

Dealing with debt is already stressful, but if you stop making the payments, it can compound this pressure. Since your creditors will not get money, they will terminate and you will be back at square one. If you want to start up again, it will be more difficult since you have already not stuck to an agreement negotiated. Creditors will be weary to help again unless there are really special circumstances.

5. The Risk of Reentering Debt Review

You can not just decide to stop making payments and re-enter debt review as you feel like it. If you stop making payments on an already agreed new repayment plan, you will find it almost impossible to go under debt review again. You will still have your old debt, and the debt review flag will still be on your name. 

If this is the case, you will not be able to make more credit. The only way is to get a clearance certificate, and if you find yourself in trouble after the clearance certificate, and create new debt, then you will be able to reapply. It will then be a whole new agreement.  

• Reapplying delays: The process of reapplying and being accepted for debt review again could take time, and in the interim, your creditors could continue pursuing legal action.

6. Loss of Financial Freedom

Ultimately, the goal of debt review is to help you regain control over your financial life. Failing to complete the process can result in a prolonged struggle with debt, keeping you trapped in a cycle of repayments, legal issues, and financial instability. This can prevent you from achieving your long-term financial goals, such as:

• Buying a home
• Saving for retirement
• Taking out personal loans or credit for future needs
• Having peace of mind in your financial life

How to Avoid Failing the Debt Review Process

It’s important to stay committed to the debt review process to avoid these negative consequences. Here are some tips to help you stay on track:

1. Communicate with Your Debt Counsellor: If you are struggling, it’s vital to communicate with your debt counsellor. They can help adjust your plan or work with creditors on your behalf to make things easier.
2. Stick to Your Budget: Staying within your budget and avoiding unnecessary spending is crucial to making sure you don’t fall behind on your debt review repayments.
3. Stay Motivated: Remember that debt review is a temporary measure to help you regain control of your finances. Stay focused on the end goal of becoming debt-free, and it will help keep you motivated to complete the process.
4. Be Honest with Yourself: If your financial situation has drastically changed (e.g., loss of income), let your debt counsellor know immediately so that they can adjust the repayment plan accordingly.
5. Prioritise Your Debts: If possible, allocate extra funds to paying off higher-interest debts first. This can help reduce the time it takes to complete debt review.

In summation: Skipping payments will cause creditors to terminate and revert back to the old agreement, which means you are still listed under debt review (you can not exit the process unless you are no longer considered over-indebted through receiving the clearance certificate). 

If you stop paying you will not reap the benefits and protection anymore. Non-payment does not mean you are finished with the process, and you can not cancel if all your debt has not been paid up (excluding the bond on your home – this must be up to date). You will remain under debt review until you receive a clearance certificate.

Contact Us for Debt Counselling

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FAQs and Answers

1. What happens if I fail to complete the debt review process?

Failing to complete debt review means you lose legal protection from creditors. They may take legal action, garnish wages, or repossess assets. Your debt will return to its original terms with high interest, and you will still be flagged under debt review until you receive a clearance certificate.

2. Can I exit debt review by stopping my payments?

No, you cannot exit debt review simply by stopping payments. The debt review flag will remain on your credit record, preventing you from taking on new credit. The only way to exit is by settling all your debts and obtaining a clearance certificate.

3. Will failing to complete debt review affect my credit score?

Yes, failing to complete debt review negatively impacts your credit score. You may be flagged as a defaulter, making it difficult to access loans or financial agreements in the future.

4. Can creditors take legal action if I stop making debt review payments?

Yes, once you stop making payments, creditors can resume legal action, including court judgments, wage garnishments, and repossession of assets.

5. Can I apply for debt review again if I stop paying?

If you stop making payments on an agreed debt review plan, you will find it nearly impossible to reapply. The debt review flag will remain on your record, and creditors may be reluctant to assist you again.

6. What happens to my outstanding debts if I do not complete debt review?

If you do not complete debt review, your debts will revert to their original agreements with higher interest rates, late fees, and penalties. This will increase your overall debt and make repayment more difficult.

7. How can I avoid failing the debt review process?

To successfully complete debt review, maintain communication with your debt counsellor, stick to your budget, and ensure payments are made on time. If your financial situation changes, inform your counsellor immediately so adjustments can be made.

8. What is the only way to successfully exit debt review?

The only way to exit debt review is by fully settling all included debts (excluding home loans that are up to date) and obtaining a clearance certificate. This confirms you are no longer over-indebted and removes the debt review flag from your credit profile.