A person who has defaulted on a debt has a number of legal options designed to ensure they are treated fairly. The rights of a debtor vary depending on the type of debt. In most instances, the law requires that a creditor follows due process while enforcing a debt and affords the debtor a chance to repay the debt before enforcement.
Some legal provisions protecting debtors who are in default include;
1. Right to notices
Before a creditor can take legal action, they must provide the debtor with a formal notice. This notice must inform the borrower of the default, the amount owed, and the time they have to rectify the default. In the case of a secured loan like a charge on fixed land, several notices are issued before sale of the security. In cases of moveable properties, a notice of default is required to be issued followed by a notice of intention to sell the property prior to sale.
2. The right of redemption
Theborrower has the right to redeem their property before sale has been completed. This right is often referred to as the “equitable right of redemption”. The right of redemption allows a borrower to reclaim their property after defaulting on a loan by paying the full amount owed, including any interest, penalties, and legal fees. By paying off the full amount of the debt, the borrower can prevent the property from being sold or repossessed.
3 The right to clear and accurate Information
A debtor is entitled to clear and accurate information regarding their debt. For instance, statements of account must reflect the actual interest agreed upon, tabulation of the debt including the outstanding amount and the interest, penalties and legal fees must be accurate.
A debtor has the fundamental right to question the validity of a debt or the amount owed. This right protects the borrower against collection efforts for debts that may not be legitimate or are inaccurate.
4. The right to a fair valuation of the property and the right to surplus proceeds of sale
If a property is repossessed and sold to cover the debt, the debtor has a right to ensure that the property is sold for a fair value. They can also object if they believe the valuation is too low. Furthermore, if the sale proceeds exceed the amount of the debt, the defaulter has the right to claim the surplus.
5. Right to institute insolvency proceedings
A debtor has the right to institute insolvency proceedings claiming that they are unable to repay the debts as they fall due. Insolvency proceedings allow for protection from creditors and include reliefs such as a court approved payment plan, a temporary prohibition from enforcement of debt and discharge from debt.
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