Tag Archives: Voluntary surrender

Shortfall liability after vehicle repossession can catch you off guard

Credit Providers play a vital role in the functioning of our economy as they provide financial assistance to consumers. Most consumers make use of short-term vehicle finance, which falls within the ambit of the National Credit Act. If a consumer breaches the credit agreement, the risk arises that the Credit Provider may repossess the vehicle, and hold the consumer liable for the shortfall on the outstanding balance once it has been sold. In the case of vehicle repossession, there are two ways in which the Credit Provider can repossess a vehicle:

1) Litigation – to obtain a court order to repossess the consumer’s vehicle

The Credit Provider must send a Section 129 Notice to the consumer, prior to instituting legal action. Once a period of 10 days has lapsed, a summons will be served on the consumer, whereafter the consumer will be given the opportunity to defend the matter. If the consumer decides not to defend the matter, the Credit Provider is entitled to apply for default judgment against the consumer. In this instance, the court will then grant a court order which the Credit Provider can enforce to repossess the vehicle by means of a warrant of execution, enforced by the sheriff. Once the vehicle has been repossessed, the Credit Provider may auction off the vehicle.

2) Voluntary surrender in terms of Section 127 of the National Credit Act

A consumer can voluntary surrender the vehicle to the credit provider by giving written notice to terminate the credit agreement and thereby agrees to return the vehicle to the Credit Provider. The Credit Provider is then obligated to provide the consumer with a Section 127(2) notice to provide details of the value of the vehicle and estimated sale price. Once a period of 10 Days has lapsed the vehicle may be sold at auction. Once the vehicle has been sold, the Credit Provider is obligated to send a notice to the consumer in terms of Section 127(5) of the National Credit Act to notify the consumer that the vehicle has been sold, the nett proceeds of the sale and the remaining amount still to be settled.

The shortfall amount basically refers to the remaining obligation of the consumer to settle the outstanding balance with the Credit Provider, even though the consumer no longer has the vehicle in his possession. If the consumer fails to make payment of the shortfall amount, the Credit Provider is entitled to obtain default judgment against the consumer. Subsequently, the court will grant a court order in favour of the Credit Provider, who may then enforce it. This basically means that the Credit Provider may instruct the sheriff to attach your movable property and sell off same to settle the outstanding balance (Remaining Obligation).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein.  Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)