I Lost My Job and Can't Pay My Debt – What Happens Now?

Losing your job can turn manageable debt into unaffordable debt very quickly. Home loans, vehicle finance, credit cards and personal loans do not stop simply because your salary has stopped. However, losing your job does not necessarily mean that you need to immediately enter a formal debt or insolvency process.

The first step is to establish what money is available, what protection may already exist on your credit agreements and how long you can realistically manage while looking for new employment. If unemployment continues, you can then consider which commitments need to be reduced and whether a longer-term debt solution is necessary.

I Lost My Job and Can't Pay My Debt – What Should I Do First?

Start by establishing exactly what money will be available over the next few months. This may include your final salary, notice pay, accumulated leave pay, a retrenchment or severance package, UIF benefits and existing savings. Then calculate your essential household expenses and monthly debt repayments.

The important question is not simply how much money you have today. It is how long the available money can support you while you look for new employment. Avoid using a large portion of a retrenchment package to settle one or two creditors before understanding your complete financial position. You may need those funds for housing, food, electricity, transport, insurance and other essential expenses during unemployment.

Can I Claim UIF After Losing My Job?

If you qualify for unemployment benefits from the Unemployment Insurance Fund, apply as soon as possible. UIF can provide some income while you search for employment, although the benefit may be substantially less than your previous salary.

Include the expected benefit when preparing your temporary household budget, but do not build a financial plan that assumes UIF will maintain all of the commitments you previously paid from your salary. The objective is to establish how much breathing room you actually have.

Does My Debt Have Credit Life Insurance?

Before using limited cash to continue paying every account, check whether any of your credit agreements have credit life insurance or another form of retrenchment cover. Depending on the policy, the credit agreement and the circumstances in which your employment ended, insurance may cover monthly instalments for a period following retrenchment or loss of employment.

Check personal loans, credit cards, vehicle finance, home loans and other credit agreements individually. Do not assume that you have no cover simply because you cannot remember taking out insurance. Contact each credit provider and ask whether credit life or another relevant insurance policy exists, whether your circumstances are covered and what documentation is required to submit a claim.

Can My Creditors Freeze or Reduce My Payments?

Contact creditors early rather than waiting until arrears have accumulated. Depending on the creditor and your circumstances, assistance may include a temporary payment break, reduced instalments, restructuring of arrears or another payment arrangement.

This can be particularly useful where unemployment is expected to be temporary. Ask what happens to interest during the arrangement, how the missed or reduced payments will be dealt with afterwards and what your instalment will become when the arrangement ends. Any agreement should preferably be confirmed in writing. The Banking Association South Africa also recommends contacting your bank as soon as possible when you are experiencing difficulty meeting your financial commitments.

What If I Can No Longer Afford My Vehicle?

Vehicle finance is often one of the largest monthly household commitments. If the instalment cannot realistically be maintained, speak to the finance provider about the options available.

These may include selling the vehicle through the lender's assisted or quick-sale process or voluntarily surrendering the vehicle. A sale or surrender does not necessarily settle the entire finance agreement. If the vehicle is eventually sold for less than the outstanding balance, a shortfall may remain.

However, removing a large monthly vehicle instalment may make the remaining household commitments considerably more manageable. The decision should therefore be based on the overall financial position rather than trying to keep a vehicle that is no longer affordable.

Should I Apply for Debt Review After Losing My Job?

Debt Review may be an option, but it is not automatically the first solution following job loss. A sustainable Debt Review arrangement requires sufficient income to maintain the restructured payment. If you currently have no income, restructuring debt does not necessarily solve the immediate affordability problem. If you return to employment but your new income is lower than before, Debt Review may become one of the options considered if the reduced payment is affordable.

Before entering a long-term repayment arrangement, it is worth establishing whether reducing expensive financed commitments and negotiating directly with creditors could make the remaining debt manageable.

What If I Can No Longer Afford My Home?

If unemployment continues and the home loan can no longer be maintained, the property needs to be considered as part of the overall debt position. Where there is sufficient value in a financed property, the property may potentially be used as the asset supporting a voluntary sequestration.

If there is enough value after considering the outstanding bond and the other relevant amounts, the property can potentially provide the financial benefit required for sequestration and allow the person's broader debt position to be resolved through the insolvency process. Municipal and levy accounts are important. Significant arrears can reduce the value available in the property and affect whether this option is viable.

This cannot be determined from the estimated market value of the property alone. A detailed assessment of the property value, bond balance, municipal account, levy account and total debt must be conducted before property-based sequestration can be considered.

What If I Have Large Unsecured Debt or Shortfalls?

You may have personal loans, credit cards, overdrafts and other unsecured debt that remains unaffordable even after reducing major monthly commitments. Selling or surrendering financed assets can also result in shortfalls if the eventual sale proceeds are insufficient to settle the finance balances. Where unsecured debt and qualifying shortfalls have become unsustainable, voluntary sequestration may provide a way of resolving the overall debt position. If the person qualifies, a substantial portion of this debt may ultimately be written off through the insolvency process.

Sequestration should not be assumed to be appropriate simply because somebody has lost their job. Total debt, income, assets and the person's individual circumstances must first be assessed.

You Do Not Need to Make Every Decision Immediately

Losing your income is serious, but the first response should not be panic or trying to pay every creditor with whatever money remains.

Start with the resources and protection already available to you. Establish what you will receive from your employer and UIF. Check credit life insurance. Speak to creditors about temporary assistance and determine how realistic it is that you will return to employment. If the problem continues, look at reducing large financed commitments before deciding whether a formal debt solution is required.

Debt Review may be appropriate where sufficient income exists to maintain a sustainable restructured payment. Where the debt itself has become unaffordable and cannot realistically be resolved through repayment arrangements or asset reductions, sequestration may need to be assessed.

The objective is not simply to survive the next instalment. It is to establish a financial position that remains sustainable after the immediate crisis has passed.

If you have lost your job and can no longer afford your debt, request a confidential assessment from Solvendi. We can review your available income, financed assets and outstanding debt and provide a written assessment explaining which options may provide a practical way forward.

Disclaimer: This article is intended for general informational purposes only and should not be regarded as legal or financial advice. The appropriate debt solution will depend on your income, expenses, assets, liabilities and individual circumstances. Professional advice should be obtained regarding your particular financial position.

Contact us to discuss your current situation and receive a free detailed assessment of how the process works and what your costs will be. We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.

If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:

National: 087 220 0710

Head Office: 010 880 7589

Email: consultations@solvendi.co.za 

Website: www.solvendi.co.za