Over-Indebtedness

A legal term defined in the National Credit Act (NCA) describing a situation where a consumer’s total monthly debt repayments exceed what they can reasonably afford after meeting basic living expenses. A consumer is formally over-indebted when a court or debt counsellor determines that their financial obligations cannot be met without placing them under undue hardship. Over-indebtedness is the primary trigger for debt review under the NCA. It is distinct from simply having a lot of debt — the test is whether the repayments are still manageable relative to income and living costs. Lenders who extend credit to consumers they know to be over-indebted are guilty of reckless lending.