Relieving consumer over-indebtedness: the need for a ‘fresh start’ in South Africa
Working Paper Number:
Although the relative risks of consumer over-indebtedness can be identified, and to some extent prevented, the occurrence of unfortunate events beyond the market’s control means that some consumers will find themselves financially over-extended and suddenly incapable of paying their debts. Modern credit societies have noted this, and devised legal measures to relieve such consumers of their debt distress by discharging them of their problematic debts in order to offer them an opportunity to reclaim their financial health (the fresh start). In a context like South Africa, where households are not only highly leveraged but also highly exposed to idiosyncratic risk yet inadequately insured, such measures have never been more relevant. However, the available measures are not up to the challenge of providing meaning relief and rehabilitation of consumers. This paper attempts to show why, and proposes the implementation a simple, straightforward mechanism for debt discharge akin to the ‘fresh start’.