What the ConCourt garnishee judgment means if you're in debt

The management of the emolument attachment order, popularly known as garnishee, has undergone changes due to a recent Constitutional Court judgment. Now the decision on whether a salary can be attached by a garnishee order can no longer be made by the clerk of the court. Instead, this order has to be made by a magistrate.

The test

The magistrate has two tests to look at: Whether it would be just and equitable to grant a garnishee order and what the debtor will be able to afford.

Debtors still have to pay

The judgment does not in any way mean that debtors no longer have to pay. What it aims for is helping consumers understand financial planning better. It also seeks to ensure the fair and equitable attachment of one’s salary where people can still manage their lifestyles after a debt has been paid off.

What is unsecured lending?

Unsecured lending differs from secured lending in that there are no assets attached to the loan. Banks own your home and your car until you pay the debt in full. If you default they have the asset which they can sell off to recover the debt. As an unsecured loan has no security, the risk is that much higher for the lender so to compensate, a much higher interest rate is charged. These rates can be as high as 38% effectively per annum.

There is another layer added to the control of lending in SA. Magistrates will be involved in deciding on the fairness of attaching your salary to secure the unsecured loan. Affordability will be central to the decision.

Loans are not bad

Loans are not all bad if you can comfortably afford them. If you borrow to get out of debt then you are in trouble. Short term loans can be useful for unforeseen expenses provided you can repay them quickly. Of the current 20 million credit active South Africans half are three months or more in arrears on some form of debt.

The big problem is that they are excluded from borrowing in the future which has a huge affect on the economy.

Be careful

We should tread wearily when considering a loan. The cost of debt diminishes our ability to save. Saving for the future is the only way to improve our financial independence.

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