Have you ever received a call from a lawyer or debt collector demanding payment on a debt that you forgot about years ago, or do not even remember?
If you have not it is possible that you could receive such a call in the future.
If you do receive or have received such a call – how would you or how did you react to the caller?
And that is a very, very important question.
Before going further let me state that I am not advocating that you or anyone else should not pay your debt. Of course, you must. But sometimes it happens that a person fails to or is unable to. Maybe he was retrenched and had no income. Having no income means that you stop paying your debts, you forget about it because you have not heard from your creditors and then one day out of the blue you are contacted.
If this happens you have certain rights, and so do your creditors.
A person may acquire rights or be discharged from obligations over a period of time.
This is known as prescription.
The Constitutional Court described the reason for prescription as:
“it is important, though, that legal disputes be finalized timeously. The realities of time and human fallibility require that disputes be brought before a court as soon as reasonably possible. Claims thus lapse, or prescribe, after a certain period of time. If a claim is not instituted within a fixed time, a litigant may be barred from having a dispute decided by a court. This has been recognized in our legal system for centuries.”
What are the consequences of prescription?
- A person indebted (the debtor) to another person (the creditor) will not be liable to pay such a debt after a certain period has passed.
- This means that the creditor may not institute legal action against the debtor for the debt.
The aim of prescription is therefore to achieve legal certainty and to finalize the connection between a debtor and a creditor, and in so doing protect the debtor (consumer) against the unjustness and illegality of having to defend old claims.
As a result, old debts are terminated, or cancelled, or lapse after a certain period of time by what is known as Prescription.
The prescription of debt is regulated by the Prescription Act 68 of 1969 and the National Credit Act 34 of 2005, if the credit agreement falls under the NCA.
Certain credit transactions do not fall under the NCA, such as cases where the credit provider was not registered with the NCR at the time that the transaction took place, or pawn transactions, or if the consumer was a minor unassisted by a guardian and so on. In cases such as these a debt cannot prescribe as it does not fall under the ACTS mentioned.
The Prescription Act mainly regulates all aspects of prescription, which includes consumer debts.
Section 126B of the National Credit Act regulates and prohibits certain practices which relate to prescription, for instance, the selling of prescribed debts, or the continued collection on old debts, or restoring or resurrecting prescribed consumer debts.
How do I know if a debt might have prescribed?
Section 11 of the Prescription Act determines the time period after which a debt may be considered prescribed.
(i) mortgage bond;
(ii) any judgment debt;
(iii) any debt in respect of any taxation imposed or levied by or under any law;
(iv) any debt owed to the State
30 years in the case of these.
There are a few other types of debt that vary from 6 – 15 years before they can prescribe but we are concerned with the normal consumer debt such as loans, Credit Cards, store accounts etc. in these instances the period is 3 years.
Sections 13 – 15 of the Prescription Act states which actions may interrupt or delay the period of prescription and cause a new period to start running afresh.
Let us assume that during a certain period of three years, you never paid anything towards the debt, you were never contacted, you never acknowledged the debt, you never received a summons or judgement.
Then according to the Prescription Act the debt would have prescribed.
So, the usual period for most debts is 3 years.
Therefore, a person who is indebted to another person, under the NCA, will not be liable to pay such a debt after the 3-year period has passed.
This also means that the creditor may not institute legal action for such a debt.
However, this can be interrupted by the creditor by taking legal action and obtaining judgment, before the 3-year period has passed, which would extend the life of a debt to 30 years as a result of the judgement.
When will a prescription period be interrupted?
Section 14 of the Prescription Act states that the running of prescription will be interrupted (stopped) by an express or tacit acknowledgement of the debt by a debtor.
Examples are instances where you admit to the debt either to a creditor or debt collector, sign an Acknowledgement Of Debt, or make a payment towards the debt during this period. These are just some possibilities where the running of prescription can be interrupted and will start running afresh.
Section 15 of the Prescription Act states that the running of prescription shall be interrupted by the service on the debtor of any process whereby the creditor claims payment of the debt.
What does that mean? The running of prescription is interrupted by a summons served by the creditor on the debtor in order to claim payment of the debt.
Let us summarize what we have just heard:
In general, if a debtor in a specific time frame makes no payment towards settling a debt, does not acknowledge owing the debt or agree to pay it; or if the creditor does not demand payment from a debtor, or start legal action against him/her, or communicate with him/her in any manner, and within the required time period, a debt becomes prescribed.
Section 17 places the onus on the consumer to raise the defence of prescription if legal action is taken against him and the claim has prescribed.
Now here comes the best part if you are a consumer, who believes that your debt might have prescribed.
In order to protect consumers, the NCA Amendment Act introduced Section 126 (B)
Section 126 (B) requires the credit provider to stop collecting on prescribed accounts where the debtor raised prescription as a defence or where the debtor would have raised prescription as a defence had he or she been aware of this defence.
The onus is shifted from the consumer having to raise the defence of prescription to the credit provider to ensure that the debt it is seeking to sell or enforce has not been extinguished as a result of prescription.
In terms of section 151 of the Act a hefty administrative fine may be imposed on a credit provider contravening section 126B.
This means that if you are contacted regarding a debt, that you believe has prescribed you may raise the defence of prescription. Even if it has been sold.
How do you do that?
- Tell the person calling that you “raise the defence of prescription”. That is all.
- Never admit or acknowledge the debt
- Never sign anything
- You can also tell them that you do not know what they are referring to and that they must send you a statement from inception to date showing all payments made on the supposed account.
The best option is to merely state that you raise the defence of prescription and once you do that the onus is on the caller, the creditor, or debt collector to prove otherwise.
That is what the law allows you to do.
But remember, if you acknowledge the debt you will have to pay the debt. So make sure that you
If the debt has prescribed and you respond correctly, you probably won’t hear from them again.
Prescription of Debt in the Consumer-Credit Industry - Michelle Kelly-Louw Philip Stoop