# Regulatory Compliance Category > National Credit Act Forum >  Reckless credit in divorce settlement

## emille777

My daughter got divorced some three and a half years ago and part of the settlement, made an order of court, was that she must be provided with a suitable home for herself and two small children. The understanding was any bond must be settled within 2 years. Her ex approached his bankers and being a good client the bond was granted purely against his guarantee. This was granted depite the fact that she was unemployed, had maintenance income from him as well as interest income out of his business. The actual capital of R2.6m was purely a book entry in his business that he undertook to give her as part of the settlement. His company went under and he was sequestrated. She no longer get interest income and about one fifth of the original amount of maintenance. He ceased servicing the bond and she was faced with the bond repayment of R15,300 pm, she is still unemployed. With my assistance we manage to make ends meet but can no longer meet that obligation. Granting of the bond was totally reckless lending by the bank as the bondholder's financial situation to repay was not assessed and we intend making the bank an offer of half the bond amount with a 10% escalation and if not accepted go to court. Anyone with knowledge of this type of situation, advice.?

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## AmithS

Not sure as I don't know the legal aspects of this, but according to your description.  Didn't the bank grant the loan only because the ex stood as surety? In that case I am uncertain about if it falls under reckless lending or not?

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## sterne.law@gmail.com

Just to be clear, the material facts are as follwos:
The court ordered that your daughter must be provided a home.
If a home was financed, it had to become paid up and unencumbered within 2 years.
The actual bond was in your daughters name, with the ex husband as guarantee(surety?)

Some questions:
The company was liquidated and such process is complete?
The house was registered in your daughters name?

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## emille777

Thank you for replying.

No the process is still on-going and has been for almost 3 years. I believe their are 50 companies or so involved and they have completed some forensic investigations. A distribution is very likely.

Yes the bond is registered in my daughter's name.

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## Dave A

There are probably quite a few things to look at, one of which is going to be the information supplied with the application for credit.

Did your daughter have over R1 million in assets when making the app?
What was declared as an income on the app?

And then the kicker - did the circumstances change?

I would expect trying to have the debt declared reckless credit extension is not going to be a pushover and would not neglect to investigate other possible avenues that may extricate your daughter from the position she finds herself in.

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emille777 (20-Jul-11)

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## sterne.law@gmail.com

Getting the reckless will depend on all the facts and how the application was done.
The property marriage system will come into it as well. Has your daughter made a claim for the maintenance order to the liquidator?
Of course this will not solve the issue, but must be done in terms of going forward.

You are probably going to have to consult an attorney because there is a substantial amount of money involved and some severe consequences. 
You could try and approach the bank, but they are notorius to deal with. Furthermore in light of the liquidation proceedings they will not feel too comfortable compared to if it was merely a case of failure to procure a maintenance payment.
You may want to do the sums of selling the house. A huge emotional step but it may yield a small cashflow profit depending on value and mortgage. You could then claim against the liquidated estate. Again the actual divorce and maintenance order wording may be critical.

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emille777 (20-Jul-11)

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## emille777

She only had the furniture etc from her marriage and certainly no assets of that magnitude. The income declared I suspect, was interest income from an investment in his business (now liquidated) amounting to R42,000. Obviously the bank cannot rely on this income only for a period of 30 years and this disappeared within 2 years when he went under. The amount was a "book" entry in his business and was never really deposited.

Circumstances have not changed, in fact she is worse off with 2 growing children- one at school and the other at pre primary.

We are not trying to get out of the bond repayment but merely want reduced repayments which will be increased as and when circumstances improve. As an ex-banker I can assure you that the bond would NEVER have been granted based on her financial position alone and any lending against a guarantor alone is totally against all principles of banking.

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## sterne.law@gmail.com

There is another issue with surety and guarantee in relations to married persons. If there is any form of in community and accrual, a spouse can not be a surety, because you are in effect standing surety for your own debt.

It certainly appears that they may have bent the rules.
The difficulty here is that in terms of any form of debt counselling, a person needs to have income.
I would think that approaching the bank and attempting to re-structure is your best bet. As a banker you will know taht this is going to present it's own challenges because they will treat it like a new loan and then the computer will be satying that there is no income to support the payment.

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## sterne.law@gmail.com

Another thought -
The businesses of the ex husband are being liquidated, but has he been personally sequestrated?
I ask becuase the maintenance order is against him in his personal capacity, that he chose to use the business as a vehicle for finance/guarantee was his choice.

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## emille777

Firstly they were married by ANC and we did request a restructure. Absa made the wonderful offer to reduce the repayments by R1300 pm for 6 months and we said thank you but no thank you. Thus the reason to go the other way of reckless lending as I tried to do the right thing and pay them. They want to agree to a new agreement but I do not see the need.

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## emille777

Yes he was requestrated some 20 months ago.

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## sterne.law@gmail.com

Yes, thats banking!!
I guess it now boils down to that one does not have much choice. You may as well pursue the reckless route, that may create enough pressure to bring about a better re-structuring deal.
Of course, that means either legal fees or giving it a go oneself.

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