Being under debt review can be a lifeline when you’re overwhelmed by debt. It offers legal protection from creditors and helps you restructure your repayments. But what happens when your financial situation improves and you want to exit the process? Can you remove the debt review flag from your credit profile—even if you haven’t paid off all your unsecured debt?
The answer is yes, but it depends on your circumstances and whether a court order was granted. In this post, we’ll explore the legal options available, including how courts handle cases where a consumer’s affordability has improved but debts remain unpaid.
What Is a Debt Review Flag?
When you enter debt review, a flag is placed on your credit profile by credit bureaus like TransUnion, Experian, and XDS. This flag indicates that you are undergoing a formal debt restructuring process under the National Credit Act (NCA).
While this process protects you from legal action and helps you manage your debt, it also prevents you from accessing new credit until the flag is removed.
Why Would You Want to Exit Debt Review?
Many consumers want to exit debt review because:
- Their income has increased or expenses have decreased
- They want to apply for new credit (e.g., a home loan)
- They feel the process is no longer necessary
- They are frustrated by the restrictions and want financial freedom
However, exiting debt review is not as simple as stopping payments. It must be done legally and
correctly to avoid further complications.
How to Remove the Debt Review Flag
There are two main legal pathways to remove the debt review flag:
1. Clearance Certificate (Form 19)
If you’ve completed your debt review and paid off all your debts (excluding a home loan if it’s up to date), your debt counsellor must issue a Form 19 clearance certificate.
Steps:
- Settle all debts under review
- Request a clearance certificate from your debt counsellor
- Submit the certificate to all credit bureaus
Once received, the credit bureaus must remove the debt review flag within 3 business days.
2. Can a Court Rescind a Debt Review Order If Debts Are Not Fully Paid?
This will depend on whether a court has granted a restructering order or not.
If an order was granted – The simple answer is NO !
According to the landmark case of Van Vuuren v Roets and Others 2019 (6) SA 506 (GJ), once a magistrate’s court has declared a consumer over-indebted and issued a debt restructuring order, the consumer cannot exit debt review simply because their financial situation has improved.
In paragraph 26 of the judgment, the court made it clear that Section 71 of the National Credit Act is the only lawful mechanism for exiting debt review once a restructuring order has been granted. This section requires that all debts included in the debt review process must be fully paid (excluding a mortgage if it is up to date), after which a clearance certificate (Form 19) can be issued by the debt counsellor.
What If You Haven’t Settled All Your Debts but Can Afford to Pay?
Even if your affordability has improved significantly, you cannot apply to court to rescind the debt review order unless zou have fully complied with the repayment plan or settled all debts. The court in Van Vuuren emphasized that allowing consumers to exit debt review based on improved affordability—without settling their debts—would undermine the purpose of the debt review process and the protection it offers to both consumers and creditors.
There appear to be one exception to this
A Debt Plan Doomed to Fail: Unpacking FirstRand Bank Ltd v McLachlan
The Supreme Court of Appeal (SCA) case of FirstRand Bank Ltd v McLachlan and Others [2020] ZASCA 31 is a pivotal judgment in South African credit law. It establishes a crucial principle: a debt review court order is invalid if its terms make it impossible for the consumer’s debt to ever be paid off.
The case centred around consumers, the Maharajs, who had a home loan of over R2 million with FirstRand Bank (FNB). Facing financial hardship, they applied for debt review, and the Magistrate’s Court granted a re-arrangement order in 2011. This order drastically reduced their monthly instalment on the home loan to R8,185.50.
The critical flaw, which became the crux of the legal battle, was that this reduced monthly payment was less than the interest accruing on the capital debt each month. Consequently, despite making regular payments under the court order, the Maharajs’ total debt was not decreasing but was, in fact, continuously growing. By the time FNB applied to have the order rescinded, the outstanding loan had ballooned to over R3 million.
FNB argued that the original debt review order was legally invalid from the outset (void ab origine) because it was granted outside the powers (ultra vires) conferred on the Magistrate’sCourt by the National Credit Act (NCA).
The SCA agreed with the bank. In its judgment, the court clarified the purpose and limits of a debt re-arrangement order under the NCA. It held that the Act empowers a court to “re-arrange” or “restructure” a consumer’s obligations, for instance, by extending the repayment period to lower instalments. However, this power does not extend to altering the agreement so fundamentally that the underlying obligation can never be satisfied.
The court reasoned that the legislative purpose of debt review is to provide a viable pathway for an over-indebted consumer to eventually satisfy their financial obligations and achieve rehabilitation. An order that results in an ever-increasing spiral of debt achieves the opposite; it is unsustainable and offers no real relief to the consumer while being prejudicial to the credit provider. Therefore, the SCA concluded that the original Magistrate’s Court order was a nullity.
This landmark decision provides a clear ground for the rescission of unworkable debt review orders and underscores that any such order must be mathematically viable and lead to the eventual settlement of the debt.
What Are Your Options If You Want to Exit Early?
If you are under a court-ordered debt review and have not yet paid off all your debts, your options are limited:
- Settle all debts included in the debt review plan (excluding a current home loan)
- Request a clearance certificate from your debt counsellor
- Submit the certificate to all credit bureaus to remove the debt review flag
There is no legal basis to approach the court for rescission based solely on improved affordability once a restructuring order is in place.
Important Legal Takeaway
The Van Vuuren v Roets case resolved a long-standing uncertainty in South African debt review law.
It confirmed that:
- Improved affordability is not a valid reason to exit debt review once a court order has been
granted - Section 71 of the NCA is the only lawful exit route in such cases
- Consumers must fully settle their debts before they can be removed from debt review
Important Legal Considerations
- You cannot simply “cancel” debt review by stopping payments or ignoring the process. This can lead to legal action from creditors.
- Only a court can rescind a debt review order once it has been granted.
- The NCR no longer allows manual updates to the Debt Help System (DHS) by debt counsellors.
All updates must be supported by legal documentation.
Beware of Scams !
Many companies promise “quick debt review removal” for a fee. These are often scams. Only a registered debt counsellor or legal professional can assist you with legitimate removal through the proper legal channels.
What Happens After the Flag Is Removed?
Once the debt review flag is removed:
- Your credit profile will be updated
- You can apply for new credit (subject to lender approval)
- Your credit score may begin to improve over time
However, any negative listings (e.g., defaults or judgments) will remain until they expire or are removed through a separate legal process.
Need help removing a debt review flag or applying for rescission?
Contact our legal team today for a FREE consultation to discuss how we can assist you.