Debt Collection and Debt Management PDF

LEARNING UNIT 1 THEME ONE UNDERSTANDING DEBT AND DEBT COLLECTION Debt collection consists of the steps needed to take in order to obtain payment of a liquidated debt owed to them by a debtor The basic object is to recover payment of an amount that a debtor owes to a client of attorney Debt colle...

LEARNING UNIT 1 THEME ONE UNDERSTANDING DEBT AND DEBT COLLECTION Debt collection consists of the steps needed to take in order to obtain payment of a liquidated debt owed to them by a debtor The basic object is to recover payment of an amount that a debtor owes to a client of attorney Debt collections are regulated by 2 pieces of legislation: the magistrates court act and the national credit act 34 of 2005. (sources od dc rules) Purpose of the national credit act is to protect consumers from deception and unfair conduct by credit providers. WAYS OF ENFORCING JUDGEMENT Warrant of Execution Against the Property of the Debtor- If a court decides that someone owes money, the person they owe can ask the sheri to help get the money. The sheri can take the debtor’s things, like furniture or electronics, and give the debtor time to pay. If the debtor doesn't pay in time, the sheri will sell those things to get money to pay the debt. But, the sheri can’t take everything. Some things, like clothes or things needed for daily life, can't be taken. Only extra things can be sold to pay the debt. (TAKES THE STUFF) Section 65 proceedings- If someone owes money, the creditor can ask the court to let the person pay a little bit each month. The court checks if the debt is real and looks at the person’s money situation. It might decide they don’t need to pay for things that aren’t necessary. This is cheaper than taking their stu , and is used when the person doesn’t own anything valuable. The court tells the person how much to pay, and the person can o er to pay in smaller amounts each month (PAY IN INSTALLMENTS) Garnishee Application- If the person who owes money doesn’t have anything valuable but is waiting for money from someone else (like a payment, inheritance, or bank deposit), the court can help. The court can order that part of the money they are supposed to receive be given straight to the creditor instead. This money goes to the creditor’s lawyer. (MONEY FROM SOMEONE ELSE) Undertaking section 57- If the person who owes money gets a letter asking for payment, they can agree to pay in smaller amounts. They admit they owe the money and promise to pay. If they don’t keep their promise, the court can make them pay the full debt or keep paying in smaller amounts. Consent to judgement under section 58- If the person who owes money gets a letter asking for payment, they can agree to pay the debt in smaller amounts. The court will then make a decision right away and order them to pay in installments. DEBT COLLECTION PROCESS Letter of demand, summons,(NO RESPONSE) request for default judgement, enforcement of judgement, payment is received THEME TWO UNDERSTANDING INTEREST Interest is payment associated with borrowing or lending money. E ects that issuing of summons have on collection of interest In South Africa, when someone owes money and doesn’t pay, the person they owe can send a summons. This stops the time limit on collecting the debt and helps them get extra money called interest. The court can also make the person pay. But going to court costs money, takes time, and there’s no guarantee it will work. So, the person who is owed money must think carefully before deciding to go to court. The law makes sure everything is fair, but the person must act quickly and follow the rules. Debtors liability between the following processes Before the issuing of summons: If the debtor agreed to pay interest (e.g., in a contract), the creditor can claim it. If there’s no prior agreement about interest, the creditor cannot claim any interest for the period before issuing the summons. If interest is claimable, the agreed rate applies. After summons is issued: Before judgement: If someone owes money, they have to pay interest on the debt from when they are first notified (through a summons) until the court gives its decision (judgment). After judgment: The person who owes money has to pay interest on the amount they still owe, plus any extra costs, at the rate set by the court. his interest is charged from the date of the judgment until the debt is fully paid, at the rate set by law. INTEREST CALCULATION Rate of interest/100 x number of days/365 x amount on which interest is payable THEME 3 COLLECTION COMISSION Collection commission is fees charged by a debt collector for their services for recovering debt Collection commission b-may be recovered from the debtor: Collection commission may be recovered by debtor even if no section 65 is made against them in the case of interest Collection commission can only be recovered if it’s part of the agreement, the debt is handed over for collection, and the charges comply with legal limits. Debt Agreement Allows for It: The original agreement between the creditor and debtor must specifically state that collection commission can be charged. Debt Has Been Handed Over for Collection: Collection commission is recoverable only if the debt has been handed over to an attorney or collection agency for recovery. Limits Set by Law THEME FOUR UNDERSTANDING CIVIL PROCEDURES AND ITS PROCESSES Dies induciae- the number of days within which the defendant may enter an appearance to defend the action Domicilium citandi et executandi - refers to the address chosen by a person where they agree to receive legal notices, documents, and court summons. Service- the service of a document/notice/pleading/process refers to the act of handing a copy of the document to the other party to the suit by the sheri or deputy sheri Filing- act of handing the original document to the clerk of the court Dominus litis- refers to the person who has the primary control over and responsibility for a lawsuit or legal proceedings. Litis contestation- the point in a case when the arguments from both sides are locked in, and the court knows exactly what it needs to decide. (closing of pleadings) Legal Secretary: Supports lawyers with paperwork and administrative tasks. Clerk of Court: Manages court records and proceedings. Sheri : Enforces court orders, serves documents, and handles evictions. Deputy Sheri : Assists the sheri with enforcement duties. Plainti : The party bringing a lawsuit. Defendant: The party being sued or accused. Civil procedure- the rules, principals and practices by which civil disputs are resolved according to the law. Sources civil procedure rules, The Constitution, Uniform Rules of Court, The Magistrates’ Courts Act 32 of 1944 LEARNING UNIT TWO THEME ONE OPENING A DEBT COLLECTION FILE Information that should be on a clients file cover; The name of the client The name of the plainti The name of the defendant, and The reference number Type of matter / work involved Internal folders of a debt collection matter and their contents; legal correspondence pleadings notices Requirements for a fee sheet NAME OF CLIENT: REF NO: NAME OF DEBTOR: ADDRESS: CLAIM: R THEME TWO LETTER OF DEMAND A Letter of Demand is a letter that asks the person who owes money to pay or fix the problem. It gives them a chance to sort things out before the law gets involved. It’s the first step in getting the money back. You don’t always have to send this letter, but it’s a good idea. If the person who owes money agrees to pay but doesn’t follow through, the lawyer can ask the court to make them pay without going to court first. Purpose of a letter of demand The main purpose of a Letter of Demand is to let the person who owes money know that they have to pay, and to encourage them to settle the debt. Basic content of letter of demand Name of the client on whose behalf payment is being claimed. Amount claimed. Cause of action. Time limit for compliance. The prescribed fees and costs of the LOD and postage. The only time is letter of demand is required- If someone owes money because of an instalment plan, the law requires that they be sent a warning letter before any legal action is taken. This letter is part of the National Credit Act. Importance of s129- The notice tells the person who owes money that they’ve missed a payment. It also suggests they talk to a debt counsellor or another service to help fix the problem or come up with a plan to catch up on payments. Consequences of non-compliance with s129- Non-compliance renders the legal proceedings fatally defective and cannot be rectified by simply delivering a fresh notice. The attorney would have to withdraw the action formally and start afresh. 3 OUTCOMES A LETTER OF DEMAND WILL HAVE If the person who owes money doesn’t respond, a summons (court order) must be sent If the person o ers to pay in smaller amounts, this can be done in writing according to section 57 of the law. If the person agrees to pay the debt and accepts the court’s decision, they give consent to judgment under section 58 of the law. THEME THREE COMMENCING LEGAL PROCEEDINGS Jurisdiction and how its established- a court’s power to hear and decide a case. It decides which court can handle a case based on things like where the case happened, what the case is about, and who is involved. Subject Matter Jurisdiction: This depends on what the case is about. For example, family court deals with divorce cases, and criminal court deals with crimes. Personal Jurisdiction: This depends on the people involved. A court can only hear a case if the person or company is connected to the area (like living there or doing business there). Territorial Jurisdiction: This depends on where the case happened. A court can only handle cases that happened in its area. LEARNING UNIT 3 SUMMONS COMMENCING ACTION IN DEBT COLLECTION THEME ONE TYPING OF DOCUMENTS Rules: documents must ne clearly printed or typed in black ink, A4 must be used, binding margin of three cm, typed in double spacing. How a legal document must be assigned and addressed: High Court: In the High Court, both a lawyer (advocate) and a legal representative (attorney) must sign documents like summons and other papers. The only exception is when the attorney is appearing in court for the case. Magistrates Court: In the Magistrates Court, the person involved in the case or their attorney must sign the documents. Address: Every summons must also have the attorney's physical address listed, and this address must be within 15 kilometers of the court. Court heading: The Court: The name of the court where the case is being heard. Case Number: The unique number given to the case by the court. Names of the Parties: The names of the people or groups involved in the case. THEME TWO SUMMONS A summons is a legal document that starts a court case. It tells the person being sued (the defendant) that they need to go to court and respond to the claims made against them. A Simple/Ordinary Summons is used in the Magistrates Court. It gives a brief description of the claim directly on the summons. If there isn’t enough space on the summons for all the details, the extra information is attached in a separate document. 3 TYPES OF CLAIMS Liquid Claims: These are claims where the exact amount owed is clearly written down (like in a credit agreement). Liquidated Claims: The amount owed is set or easy to figure out (like in a lease agreement). Illiquid Claims: These are claims where the amount owed is not fixed and needs to be figured out (like in an oral agreement). DIFFERENCES BETWEEN MAGISTRATES COURT AND HIGH COURT SUMMONS High Court: In the High Court, both a lawyer (advocate) and a legal representative (attorney) must sign the documents. Magistrates Court: In the Magistrates Court, the person involved in the case or their attorney must sign the documents. DIFF TYPES OF SUMMONS Simple Summons: Used when the exact amount owed is clear (liquidated claims). If the defendant wants to fight the case, the plainti must give more details in a document called a declaration. Combined Summons: Used for claims where the amount isn’t clear (illiquid claims). The details of the claim are included in the summons. Provisional Sentence Summons: Used for claims based on clear written agreements (liquid claims). It tells the defendant when the case will be heard and that they must show up if they want to defend it. THEME THREE PREPERATION OF SUMMONS Heading of summons The Court: The name of the court where the case is being heard (e.g., "The Magistrate’s Court for the District of Durban Held at Durban"). Case Number: The unique number the court gives to the case. Names of the Parties: The names of the people involved. In a lawsuit, they are called plainti (s) and defendant(s). In an application, they are called applicant(s) and respondent(s). The body of summons The summons must include details about both the plainti (person suing) and the defendant (person being sued). This includes their first name, last name, gender, marital status, job, and where they live. If the defendant’s home address is not known, their work address can be used instead. If someone can’t handle the case on their own, a representative must do it for them, and this Should be mentioned in the summons. Dies induciae in high court and magistrate court High court- If the defendant lives near the High Court, they have 10 days to reply. If the defendant lives more than 160 kilometers away, they have 21 days to reply. In other cases, they have 14 days to reply. Magistrate court: 10 days to reply THEME FOUR SERVICE OF SUMMONS Ways summons may validly be served; The summons is served by the sheri or someone working with them. If there is no sheri in the area, the police can serve the summons for free. The summons can be given directly to the defendant or handed to someone over 16 years old. If the defendant isn’t there, the summons can be stuck to their door. It can also be sent by registered post by the sheri. If there are multiple defendants, the sheri must serve each one a copy. Return service: A document that shows what a shrie did with the document The name of the person who served or tried to serve the summons. The time and date the summons was served. The name of the person who received the summons or how it was served. The sheri ’s fee for the service. Consequences of non-service: The sheri must ask about where the defendant is and include the answer in the return of non- service if they couldn’t serve the summons. In the Magistrate's Court, the summons must be re-issued if it wasn’t served and needs to be sent to a new address. In the High Court, there’s no need to re-issue the summons if it wasn’t served. LEARNING UNIT 4 OBTAINING JUDGEMENT AGAINST THE DEBTOR THEME 1 DEFAULT JUDGEMENT ON A SUMMONS MET BY NO RESPONSE Default Judgement: A default judgment is a judgment given against the defendant because they didn’t respond to or defend the claim made against them. If the defendant doesn’t defend the case, it’s assumed that they’re not disputing the claim. Default judgement obtained: If the debtor promised to pay under Section 57 but didn’t keep their promise, they are in breach. If the debtor agreed to the judgment under Section 58, it means they’ve already accepted that they owe the money Who grants default judgments- A default judgment is granted by the clerk of the court. The clerk then tells the attorneys about the terms of the judgment. The clerk fills out the bottom part of Form RM5A and RM5B and sends it back to the attorney. When Form RM5 is used, the terms of the judgment are stamped on the form before it's returned to the attorney. Default Judgement into s57 undertaking: The debtor agrees they owe the money and promises to pay it in parts (installments). There’s no set form for this promise, and it might look di erent in di erent o ices. The promise is like an o er, and the creditor can either accept or reject it. INFORMING THE DEBTOR OF THE ACCEPTANCE/REFUSAL OF THEIR OFFER If the creditor accepts the o er, they must tell the debtor right away. This should be done by sending a letter through registered post to make sure the debtor gets it. If the creditor rejects the o er, they must explain what kind of o er they would accept. If the court finds that the creditor refused a reasonable o er, they won’t be allowed to recover the costs of going to court. WHAT CAN THE CREDITOR DO IF THE DEBTOR HAS FAILED TO PAY IN TERMS OF S57 UNDERTAKING The creditor can ask the court for a judgment by giving the court clerk these things: A request for default judgment (asking the court to decide in their favor because the debtor didn’t respond). A copy of the Letter of Demand (LOD) that was sent to the debtor. The debtor’s undertaking (a promise to pay). A copy of the letter where the creditor accepted the o er, plus the proof of posting (registered slip). A certificate from the attorney explaining how the debtor didn’t follow through with the o er. These are the documents the creditor needs to show to the court to get a judgment. THEME 3: JUDGEMENT ON A CONSENT TO JUDGEMENT UNDER SECTION 58 the debtor admits they owe the money and agrees that the court can give a judgment against them. There is no standard form for the consent to judgment, meaning it can be written in di erent ways, but it must clearly show that the debtor agrees to the judgment. Attorneys cannot charge a fee for preparing this consent. The creditor does not have to tell the debtor if their o er to pay in installments is accepted or not when agreeing to the judgment. Explain the purpose of the notice The notice to show cause is used to call the debtor to court to explain why they haven't paid the debt. The creditor's attorney drafts and signs the notice. The clerk of court issues the notice, and it is delivered to the debtor by the sheri. The notice can only be issued 10 days after sending the debtor a letter that informs them about the judgment. The sheri or messenger of court must serve the notice on the debtor at least 10 days before the court hearing. THEME 5: NOTICE TO SHOW CAUSE UNDER SECTION 65A (1) (FORM RM40) This step is taken if: The debtor does not keep up with the payments they promised, whether it’s from an o er to pay in installments, a court order, or a consent to judgment. The debtor has agreed to an emoluments attachment order (where part of their salary is taken to pay the debt). If they don't follow through, the emoluments attachment order can be served on the debtor's employer instead to deduct the money directly from their salary. This process helps to make sure the debtor continues paying what they owe. Purpose of hearing The hearing is held to check the debtor’s financial situation when they haven't paid a judgment (money owed) against them. During the hearing, the debtor must speak under oath and give oral evidence (speak in court) about their financial position — how much money they make, what they owe, and what they can a ord to pay. This helps the court decide what should be done next to collect the debt. Requirements for service The sheri or messenger of court must serve the notice on the debtor at least 10 days before the hearing. A suitable period for this process is about one month from the time the form is typed and prepared. The notice must be personally served on the debtor, meaning the sheri or messenger must hand it directly to the debtor, not just send it by mail or leave it with someone else. LEARNING UNIT 5 WARRENTS OF EXCECUTION A warrant of execution against property (also called a writ)- is another way to enforce a court judgment. It is a court order that lets the creditor take the debtor's belongings to cover the debt they owe. The sheri is responsible for taking the debtor's assets (things they own) up to the value of the judgment debt. These assets are then sold at an auction (called a sale in execution), and the money from the sale is used to pay o the judgment debt, plus any interest and costs. ASSESTS THAT MAY NOT BE ATTACHED Necessary beds, bedding and clothes of the debtor and his family. Necessary furniture, in so far as they do not exceed the sum of R2 000 in value. Stock, tools of trade, equipment of a farmer, professional books or instruments, not exceeding R2 000 in value. Arms and ammunition a debtor is required by law to have (e.g. gun for personal protection). Food and drinks at the debtor’s house su icient for his needs and that of his family for one month. ATTACHMENT OF IMOVABLE PROPERTY This process can only happen after receiving a nulla bona return for movable property (meaning the sheri couldn’t find any movable property to seize) and after obtaining a court order. The creditor must apply to the High Court, and if the court agrees, it can declare the debtor's immovable property (like their house) to be executable (able to be taken and sold to pay the debt). Once the court order is made, the following people must receive copies of the application and be served by the sheri : The debtor (the person who owes the money). The Registrar of Deeds (who keeps records of property ownership). The registered holders of bonds (like a bank that holds a mortgage on the property). The occupier (for example, a tenant living in the property). The local authority (like the municipality). Any other person who may have an interest in the property. These steps ensure that everyone involved or a ected by the property is informed before any action is taken. NULLA BONA RETURN Nulla bona means "no goods" and it’s used when the sheri cannot find any property that can be taken to satisfy the debt. In the return of service, it will show that there were no goods found for attachment, and this is called a nulla bona return. Consequences of a Nulla Bona Return: Change in debtor's status: The debtor's situation may change, and they may be considered insolvent (unable to pay their debts). Impact on property rights: The debtor’s right to not lose their home or property without a proper process may be a ected. This can lead to declaring the immovable property (like a house) executable, meaning it can be taken and sold to pay the debt. These consequences ensure that debtors’ rights are considered, but also allow creditors to take further steps if necessary to recover the debt. SALE IN EXCUTION (AUCTION) When property is attached (taken) to satisfy a debt, the items are listed in an inventory that is attached to the return of service (a report by the sheri ). The attachment remains in e ect until either the property is sold at a sale in execution (auction) or the parties agree to release the asset. If the immovable property (like a house) is attached, the Registrar of Deeds places a caveat (warning) on the property’s title deed. This stops the property from being sold or transferred to someone else. The creditor must instruct the sheri , in writing, within 14 days after receiving the return of service to proceed with the sale in execution if they want to move forward with selling the attached property. WRITS AND INTERPLEADER PROCEEDINGS If a third party’s goods (someone not involved in the debt) are attached in the sale of execution, the third party can make a claim to get their property back. The third party must tell the sheri exactly which goods they own that have been attached. They must also prove that the goods belong to them by showing evidence, like receipts or other documents proving ownership. This process allows the rightful owner to protect their property from being sold if it was wrongly attached. INTERPLEADER SUMMONS his summons is used when a third party holds money or property that is involved in a legal dispute, but the third party does not have any interest in the property itself. The third party is essentially holding the property for the two parties who are in dispute (the plainti /creditor and the debtor). The third party can ask the two parties who are fighting over the property to settle the dispute with each other, meaning the plainti /creditor and the debtor must resolve their issue in court. The sheri issues this summons to both the third party (who is holding the property) and the plainti /creditor, requiring them to come to court and litigate (resolve the issue) between them. This summons helps clear up who has the right to the property or money being held. EMOULMENT ATTACHMENT ORDER An Emolument Attachment Order (EAO) is a court order that allows the judgment creditor (the person who is owed money) to take part of the salary or wages from the judgment debtor (the person who owes the money) to pay o the debt. This order helps recover the money owed by directly taking a portion of the debtor's earnings, usually through their employer, until the debt is fully paid. LEARNING UNIT 6 TRANSFER OF JUDGEMENT TRANSFERING OF JUDGEMENTS FROM ONE MAGISTRATE DISTRICT TO ANOTHER A S65 enquiry, which is about collecting a debt, can only happen at the court where the person who owes the money lives, works, or runs their business. However, if the person moves to a di erent area, the court rules allow the debt judgment to be transferred to a di erent court. To do this, you need to get an o icial copy of the judgment, or a part of the civil record that shows the details of the case. Requirements for a Certificate of a Civil Judgement This document includes the following information: The name of the person or company that is owed money (the creditor). The name and address of the person or company who owes the money (the debtor). The date the judgment was made and how much money is owed. The amount of costs related to the judgment and any costs that have come up since. Any details about a section 65 order (which is related to debt collection). Transfer of a judgement from the High Court to the Magistrate’s Court (S65M) If a judgment is given in the High Court for a certain amount of money, it can be moved to a magistrate’s court, even if the amount is higher than what that court normally handles. The process is similar to how a County Court Judgment (CCJ) is handled, but the judgment creditor’s lawyer must provide a certificate confirming the amounts listed in the notice. This procedure has two benefits: It helps save money. It frees up High Court sta from doing routine tasks, allowing them to focus on more important judicial matters. TRACING THE DEBTOR Debtors sometimes move to a new address without telling the creditors. There are agencies that can find out where these debtors are, but they charge a fee for this service. When you hire these agencies, you must provide them with all the information you know about the debtor to help them find the person ARRESTING THE DEBTOR A Committal under S109 of the Magistrate’s Court Act Section 109 says that once a judgment is made against a debtor, they must inform the creditor’s lawyer in writing of their new address within 14 days if they change where they live, work, or do business. If the debtor is found later, they must appear in court to explain why they didn’t update their address. If they can’t provide a good reason, the court can issue an arrest warrant, and they could be sent to jail for up to three months. WARRANT OF ARREST SECTION 65A If the debtor doesn't show up in court on the date mentioned in the notice, the court can issue an arrest warrant for them. The sheri will then arrest the debtor and bring them to court as soon as possible. Alternatively, the sheri can give the debtor a notice telling them to appear in court on the next scheduled court date.