The Debt Collection Process

How does the debt collection process work?

If you institute a debt collection process against someone via a lawyer, this is more or less the form it’s going to take.

Letter of demand

First off is the letter of demand. Now a letter of demand is not mandatory. It is usually used where you either want to warn the person first that you are about to institute legal action against him/her or to try to curb costs. If the debtor pays after the letter of demand there is no need to pursue further legal action against them and that of course will save on costs.

Summons

If they do not react to the letter of demand or you chose not to send a letter of demand we move on to a summons. A summons starts the legal process and informs the debtor of the amount to be paid and what it is for. A summons also provides the debtor with 10 court days to file a notice of intention to defend should he/she dispute the claim in the summons. If they do file an intention to defend you can either follow the steps of civil litigation or you can apply for summary judgment.

Default judgment

If they do not file an intention to defend and they still have not paid or made an arrangement to pay, then you may apply to court for default judgment. Once you have judgment against the debtor you can proceed in one of two ways. But first another 10 court days must pass between the default judgment and your next action step.

After default judgment you can either have a warrant of execution issued or you can follow section 65 of the Magistrate’s Court Act 32 of 1944 procedure.

Warrant of execution

A warrant of execution is served by the sheriff (just like the summons). The sheriff then demands payment or seizes whatever assets the debtor has in order to sell them at an auction in an attempt to recover the debt. If the auction does not make enough to cover the debt or you don’t want to seize the debtor’s assets or the debtor doesn’t have any assets, you can move along to section 65 procedure.

Section 65 procedure

Section 65 procedure is where the debtor is requested to appear in court so that the court can establish the financial position of the debtor. First a letter of demand is sent to the debtor in terms of Section 65A(2) of the Magistrates Court Act to warn the debtor that if/she doesn’t pay now then he/she will have to appear in court. If no response is received a notice in terms of Section 65A(1) is issued and served by the sheriff. This notice requests the debtors presence in court.

In order to undergo a financial investigation by the court the debtor will have to clarify what his/her financial position is. In order to do so the debtor will have to furnish the court with 3 months’ bank statements, salary advice and proof of expenses.

The end goal of this procedure is to make an arrangement acceptable to both debtor and creditor to pay off the debt.

Warrant of arrest

If the debtor at any point fails to show up for court during this procedure without reason, a warrant of arrest can be issued and the debtor will be arrested. The debtor will then have to appear before court and will receive a new date on which the debtor must be present in court for the financial investigation.

Acknowledgement of debt

At any point during any of the steps, the debtor may approach the creditor’s attorney and make an arrangement to pay off the debt. An acknowledgement of debt will then have to be signed stipulating the terms of the arrangement. The debtor will be liable for all legal costs incurred in these processes as well as interest at the prescribed rate (currently 10.25% per annum).