Atty. Barney Almazar explains how to avoid being in a downward credit card spiral which could get you to court or worse, put you behind the bars.
No Debt Sentence this 2014
By Barney Almazar, Esq.
So you’ve done your holiday shopping, hit the malls for that iPhone 5s or designer purse, but before you think about taking out that credit card and swiping it for another purchase this year, read Article 401 of the UAE Penal code first:
“A punishment of confinement of one month to three years, or a fine of a minimum of AED1,000 shall be inflicted on any person who, in bad faith draws a cheque with no existing or drawable provision.”
Your MasterCard maybe as good as cash to Prada but as far as your credit card issuer is concerned, the consumed portion of your credit limit is “borrowed money” which you will have to repay plus interest. This means that you shouldn’t treat your credit card as cash in your wallet. I’d like to discuss how you can manage credit and the legal implications of not being able to do so since I bet you wouldn’t want to spend 2014 sitting in jail due to all your unpaid holiday purchases.
When you applied for your credit card, you have agreed to the terms and conditions of the bank which you probably did not read at all. In gist, the fine print in the contract obliges you to pay all your purchases plus any interest, late charge, over limit penalty, annual membership fee and other applicable bank charges. You have authorized the bank to cash your security cheque should you default on your payment. If your cheque bounced, in the eyes of law, you have committed a crime.
The key to maximizing the benefit of credit (again, maximizing the benefit, not maxing out your limit) is paying all your purchases in full on the due date. If you cannot afford to make the full payment, strive to regularly pay more than just the minimum and do not use the card further until you are able to clear your balance. Adding purchases on top of your card balance will only make your interest payments bigger. Forget the reward points you will earn for any additional spending. The price you pay for interests certainly outweighs the monetary value of the points you earn.
If you are practicing the golden rule above, you are doing very well and need not bother reading the rest of this article. Otherwise, I need your 100% attention.
Credit card issuers, just like any other financial institutions are not charity. They earn form the interest and bank charges you pay for using their money. When you get AED100, they expect to get back not AED100 but more. The longer time it takes you to pay back, the more you lose in interest payments.
But what should you do when you overspend and cannot manage your bills? You need to get a pair of scissors, cut up your card and call the bank to arrange for a payment structure. You may negotiate a payment holiday during a period of unemployment, to extend the term of repayment or reduce the monthly payments. Once you make the settlement, you should stick to the agreed payment terms. It is always better to settle out of court as what the story of Nenita’s husband will teach you.
UAE Debt: Avoiding a Debt Sentence in the UAE
Nenita’s husband is working as an account executive in a real estate company. He has been using his platinum card for over 2 years but due to financial difficulties back home, he was unable to pay despite repeated demands from the bank’s collections department. The bank cashed his security cheque. After securing a report from the police for the bounced cheque, the bank filed a criminal case and he served jail time. Several months after his release, he and Nenita together with their 2 daughters decided to visit Manila. To their surprise, the airport immigration did not allow him to exit Dubai and was detained again for a pending civil case for collection of money.
It is a common notion that serving the prison term or paying the fine imposed for bounced cheque will erase one’s debts. This is absolutely wrong. The prison term or fine (which is normally lesser than the cheque amount) is the penalty for the criminal act of issuing a worthless cheque. It has nothing to do with the payment or extinguishment of one’s financial obligation which is civil in nature. Banks are interested in getting back their money from the defaulter. Banks will not earn anything when the cardholder pays the fine or is imprisoned. To collect the amount owed, banks will subsequently file a post-jail civil case for collection pursuant to Articles 246 and 710 of the UAE Civil Code obliging the debtor to pay his creditor as per the terms of the loan contract.
The civil case will be assigned to an execution judge who would compel the defaulter to pay up the cheque or risk being jailed again. At this point, banks are less likely to enter into a settlement. Based on experience, most banks demand full payment together with damages and cost of suit from the jailed cardholder.
Though the holiday season may mean increased spending for many, not all gifts have to be bought from stores. A clean credit history is priceless. Examine your wallets and consider rewarding yourself with financial freedom.
Handling Hard Times: When Debt Becomes Unmanageable
When you keep on borrowing money and debt becomes unmanageable, you will experience feelings of fear, stress, guilt, shame or anger. If you are in debt, you may receive phone calls and letters from the companies or people you owe money to.
What are the warning signs that you are headed for financial trouble?
Are you regularly spending beyond your budget?
Are you living from payday to payday?
Are you unable to meet rent payments?
Are you always paying only the minimum credit card bill?
Are you not aware how much your total debt is?
Have you maxed-out more than 2 credit cards?
Are you consistently paying bills late?
Are you hiding your debt situation from your spouse?
If you answered yes to any of the questions above, you really need to re-examine the way you handle your finances. You must aggressively pay off your debts and don’t hesitate to seek professional help.
Handling Hard Times
Call your bank to arrange a loan restructuring
List all expenses and determine which expenses can be eliminated, reduced or deferred
Control your spending accordingly
Always pay by cash, do not get additional loans
Take advantage of available programs, benefits and insurance
Eat well, sleep well and maintain social contacts and a positive outlook
How to Settle Loans?
Contact the collections department of your bank and advise you would like to make a settlement.
If you have defaulted on several loans within the same bank, inform the collections officer that you would like to settle all your loans. For example, if you have credit cards, personal loans and car loans issued by the same bank, you should settle all loans in one agreement—because the bank can still file a case against you for the other loans which you did not settle.
Important questions to ask your bank:
How much is the outstanding balance per account?
Have they filed a police case against you?
Which police station?
What is police case number?
When was it filed?
How much is the value of the bounced cheque?
What are the available settlement options?
Minimum settlement amount for one-time payment?
Longest installment term and how much is the monthly payment?
Minimum payment to release the police case, and what would be the payment terms for the remaining balance?
Once you have agreed on a settlement option, request for the settlement letter.
Make the payment as per the settlement letter. Do not make any payments unless you have the settlement letter.
Get the Release/Clearance Letter once you have complied with the payment terms.
If you have a pending case, secure clearance from the bank’s lawyer.
Present the clearance to the police station so your records can be cleared from the police and immigration systems.
Process for out-of-court settlement:
The courts or the police will not be involved.
Settlement will release you from criminal/police and civil cases.
If the bank condoned part of your debt, your name will be included in the Central Bank blacklist.
Police Case vs. Civil Case for Bounced Cheque/Unpaid Loan
|Police Case||Civil Case|
|Applicable Law||Article 401 of the Penal Code||Article 272 of the Civil Code|
What is the complainant asking the court?
|For the offender to be punished for issuing a bounced cheque||For the debtor to pay the amount owed|
|What is the punishment?||Jail term and/or payment of fine/penalty (not the amount of the bounced cheque)||Payment of loan obligation plus damages or imprisonment if unable to pay|
|What offices are involved?||Police, Prosecutor, Criminal Court||Civil Court|
|Can I leave the country?||No.||Yes, unless the bank files a travel ban|
|Can I cancel/transfer/renew my visa?||No. You can process your visa once you have served the jail term/paid the fine or settled your loan.||Yes.|
|Can I renew my passport?||Yes, request the police or court||Yes, request the court|
|Will I be deported?||No||No|
|Can it be filed even if I’m not in UAE||Yes||Yes|
|Will service of sentence erase my debt?||No. Your bank can still file a civil case for collection of the amount you owe.||Yes, your payment of the amount ordered by the court will extinguish your loan obligation.|
|Will imprisonment erase my debt?||No. Imprisonment will only clear your case for issuing a bounced cheque.||No. Only payment of the amount owed will erase your debt. Creditor can still request a travel ban even after you have served your jail term.|
|Can I enter into a settlement during the trial?||Yes, as long as no judgment has been passed. The case will be dismissed if you will pay the amount demanded by your creditor.||Yes, you can enter an amicable settlement at any time, even after judgment has been rendered.|
|Will I go to jail even if I surrender my passport to the police/court?||No, during the trial. Yes, after the judgment (if you are proven guilty).||No, during the trial. Yes, if you cannot pay after the judgment.|
For more information on Central Bank rules on debt collection, readers can visit www.gulflaw.infoor call 04-4492016. Gulf Law and volunteer Filipino lawyers hold monthly free legal aid and seminars at the Philippine Consulate in Dubai and Embassy in Abu Dhabi.
Check out our video on the UAE Law – UAE Code of Conduct, Deportation and Blacklists & Debt Issues
Illustrado LIVE! Let’s talk UAE Law, Debts, Blacklist, atbp.Illustrado Live: You and the Law! Team Illustrado chats LIVE with Atty. Barney Almazar on the UAE Code of Conduct and how to address debt-related issues in the UAE
Barney Almazar, Esq.
Atty. Barney is a director at the Commercial Department of Gulf Law in the Middle East, Philippines and United Kingdom. He holds Juris Doctor and MBA dual degrees with concentration on International Business and European Union Law (University of London). He is a partner at Avanti Gulf, a recruitment company with access to 400 firms and 16,000 recruiters across six continents. Readers can contact him at email@example.com