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What happens to your debt if you get retrenched?

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If you get retrenched, you will need to rework your budget to ensure that you can still meet your financial obligations like monthly debt repayments.

Overview

Retrenchment is a common occurrence when companies need to downsize their operation. If you are retrenched and no longer earn remuneration from a business, your obligation to pay your debt, unfortunately, does not disappear and you will need to utilise one of many options to try and still make monthly payments on your debts.

What is retrenchment?

Retrenchments are becoming a much more common occurrence in many people’s lives. The term refers to the termination of employee contracts in the private sector.

This happens through no fault of the employee, but rather, as an attempt to downsize the human capital of the company as a result of economic, technological, structural, or any other restraints placed on the operations of the business.

In the retrenchment process, it is important that the business approaches and consults with the employee well in advance so that a fair settlement can be reached between both parties.

What happens to your debt if you get retrenched?

Although retrenchment is an unpleasant situation, the fact that you have to engage in consensus-seeking consultations with the business and need to receive notice of the retrenchment in advance, should provide you with enough time to start planning your financial and occupational future.

When you have been retrenched, you will no longer receive remuneration from your former employer, but this does not take away debt, and any instalments you have on credit accounts will still be due every month.

This is why it is important that you contact your credit providers as soon as possible if you are retrenched to inform them of the changes in your financial situation. Many credit contracts will have built-in retrenchment insurance clauses. This could be advantageous to you as this insurance may cover some of your outstanding debts for a few months, which will, in turn, give you some time to search for new sources of income to continue paying off your debts.

Ways to pay some of your debt after you have been retrenched

When you have been retrenched, it is important to sit down and rework your monthly budget. It is good to look at what your total expenses are, where you can cut back on unnecessary expenses, and what other possible sources of income you can utilise for your expenses such as credit repayments.

Once you have your budget organised, there are several options you could utilise to help you pay your outstanding debt after you have been retrenched. Some of these options include:

Option Description
Credit life insurance policy Usually taken out when you apply for a long or short-term loan and will pay out an amount to help you to fulfil your monthly repayments.
Change your bank accounts Having many accounts can be a convenient way to manage your finances, but to reduce costs, it may be wise to change your accounts to pay-as-you-transact accounts instead.
Postpone your payments A registered debt counsellor could approach the court for an order which states that the payments on your accounts may be postponed to a future date.

What happens if you have Emoluments Attachment Orders (EAOs)?

An Emoluments Attachment Order (EAO) or Garnishee Order is when a court has ordered that an amount should be directly deducted from your remuneration monthly to repay a specific outstanding debt.

However, when you are retrenched and no longer have a salary or monthly loan for this amount to be deducted from, the responsibility of paying the EAO amount remains. Since the responsibility to pay your EAO will still fall to you, failure to pay can result in added interest and various legal action and fees.

It is also important to note that your UIF, pension, and severance package should primarily be used to cover living expenses, and not just to pay off debt.

What about the Unemployment Insurance Fund (UIF)?

The Unemployment Insurance Fund (UIF) is a system which aims to provide workers with short-term financial relief when they find themselves unemployed due to maternity, adoption and parental leave, or illness.

In the case of retrenchment, you may qualify to claim unemployment funds, which could be used to pay off some of your debt. Retrenched workers will typically receive financial assistance for about 12 months if their paperwork is completed correctly.

Final thoughts

If you have been retrenched by a business, this may provide you with some time to plan your financial future.

This financial future should include paying any outstanding debts and the different options which could be utilised to continue fulfilling these monthly obligations.

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