Abu Dhabi, UAEThursday 12 December 2019

UAE debtors hope new insolvency law will ease 'mental trauma' of chronic debt

Legislation will help residents clear bad debts without the threat of criminal sanctions

Sumera Hasan managed to clear her debts with the help of The National and generous readers. Reem Mohammed/The National
Sumera Hasan managed to clear her debts with the help of The National and generous readers. Reem Mohammed/The National

Debtors in the UAE welcomed the country's new insolvency law, saying the legislation will help solve the “mental trauma of being in chronic debt”.

The insolvency law to help residents clear bad debts without the threat of criminal sanctions was passed by the UAE Cabinet on Sunday. It protects residents in debt from legal prosecution and decriminalises their liabilities, offering an opportunity to resolve their financial dilemma while still supporting their families.

Had such a law existed when I was in debt, I would have worked out a repayment plan a long time before, perhaps three years before.

Sumera Hasan, former debtor

“This will benefit individuals who genuinely want to settle their dues without running the risk of being jailed or prosecuted in court,” said Sumera Hasan, a single mother of four from Pakistan, who contacted The National in May last year because she was receiving up to 10 calls a day from collection agents over a Dh43,000 liability.

“The intervention of experts would definitely be a welcome change, too,” added Ms Hasan. “Had such a law existed when I was in debt, I would have worked out a repayment plan a long time before, perhaps three years before.”

The law, which will come into effect in January, will help debtors resolve their liabilities through court-appointed advisers who will liaise with lenders on their behalf to reach a settlement.

While Ms Hasan’s finances are now under control, she said the option of insolvency would have saved her “the mental trauma” of dealing with debt collectors and bank employees “who are given a free hand to mentally harass debtors to pay up or else”.

“It hindered my everyday work life and I personally suffered mentally and so did my family as a consequence,” she says.

The Dubai resident’s problems started when she signed up for a loan and credit cards to help pay for the delivery of twins in April 2013. Her life took a downward spiral after she and her husband lost their jobs and he later left her to raise their children – a son, 15; daughter, 8; and twins, 6 –on her own. She managed to secure a job as a researcher earning Dh16,000 a month and started repaying her debts. However, by then the bank had outsourced the debt – which had mushroomed to Dh90,000 due to fees and charges – to a collection agency.

After The National published her story, the bank agreed a settlement of Dh25,000, which was generously paid off by two British readers as part of their zakat payment during the holy month of Ramadan.

Another debtor Nisreen, a personal assistant from Syria, who did not want to reveal her full name, said the new law will help people with multiple debts consolidate them “under one umbrella”.

Nisreen, who contacted The Debt Panel last month, has one outstanding loan of Dh140,000, which she renegotiated after she was diagnosed with cancer, lost her job and ran up significant debts.

While Nisreen will clear her liability in 2028, she said the new insolvency law will not help her borrow Dh30,000 to clear outstanding debts to friends and finance her visa costs while she is fighting cancer.

She said people like her, who have cleared or consolidated their liabilities, still need a solution to take on further credit as her current low score at the Al Etihad Credit Bureau discourages banks from lending to her.

“No other banks are willing to give me any facility like a credit card or loan because of my score,” she said.

Under the new the law, court-appointed experts will devise a repayment plan between the debtor and creditors, lasting no longer than three years. During this period, the debtor will be prevented from taking on any new credit until the court decides the liability has been settled.

For one former UAE resident, who left the country with Dh71,000 in liabilities on a loan and credit card, the news “is indeed a relief to hear”.

The 33-year-old energy sector employee, who did not want to reveal his name, returned to his native South Africa in August after losing his job.

He plans to return to the UAE to start work next month after securing another role with a salary of Dh15,000.

However, he said he does not intend to apply for insolvency measures “at this stage”.

“I have been able to pay something towards my loan and credit card,” he added. “As it stands, I only have a one-month deficit which I will be able to recover by the end of December.”

Updated: November 19, 2019 07:13 PM

SHARE

SHARE