Understanding UAE debt laws
AN ESTIMATED 85% of the UAE's population are in debt and, of those, around 65-70% are suffering from bad debt that they're struggling to repay.
The days of easy borrowing and a booming economy went with the onset of the credit crunch, to be replaced by mass redundancies and companies going under on a daily basis.
Research by Rak Bank showed that an average of 2,500 people left the UAE every month last year, many of them leaving a trail of unpaid debts. Almost 8% of the expat population have already left, and if the situation doesn't improve more are destined to depart.
Unlike in Europe and the US, writing a cheque that bounces is a criminal offense here due to the existence of Shariah laws. To make matters worse, there are no structured bankruptcy laws and banks can be very inflexible in terms of repayment of loans. A lack of clear communication from banks and other financial institutions makes things more complicated.
It always helps to be aware of the laws of the land. Here, cashy takes a look at debt rules and what you can do if you find yourself drowning in a sea of debt:
Debt laws in the UAE
Despite growing demand to decriminalise bounced cheques or non-payment of dues, the rule still stands. According to article 401 of UAE penal code, a bounced cheque is punishable – either through confinement or by paying fines.
A custodial sentence does not guarantee, reduce or enforce the repayment of the amount to the creditor. However, the court usually proposes a repayment plan and it is better to follow that to avoid further complications.
If convicted, you can appeal. There are two appeal courts for criminal cases: the court of appeal and the court of cassation. The defendant will either remain in custody during the appeal procedure or be released on bail.
There is no prescribed rule for when creditors take action against someone who has written a bounced cheque. Some give the debtor 30 to 90 days to ensure there are sufficient funds in their account, but this is entirely dependent on the terms and conditions of the financial institution.
If you find the means to repay your debt, any custodial sentence imposed by the court isn't necessarily cancelled or waived. This depends entirely on the discretion of the judge and the creditor.
Even leaving the country to escape your debts is not totally risk-free. Once you leave the UAE, the creditor has the discretion to pass on your criminal file to Interpol for action overseas.
If you leave the UAE without clearing debts you will be banned indefinitely from entering the country again, unless you arrange to pay back the entire amount from abroad.
A recent change means that when it comes to property transactions only, bounced cheques are referred to a special committee under the Dubai court.
How to deal with debt
Having the threat of a prison term hanging over you is likely to compound the problem for anyone struggling to meet debt repayments, so is there anything you can do?
Yohannes Mazeingia, managing director of debt consultancy International Swiss Debt Management (ISDM), which set up shop a year ago in Dubai, urges those in debt to face their creditors and tell the truth.
Banks are becoming more receptive to helping customers deal with their debts, even although it's a relatively new concept here, he says.
"Banks are showing interest in restructuring loan repayment, postponing interest, allowing payment holidays and considering lower instalments, if they find the case is genuine and as long as they get their money back eventually," says Mazeingia.
ISDM aims to help people sort out debt issues by negotiating with the banks on their behalf – but it does cost. The consultancy doesn't charge for an initial meeting, but has a sign-up fee of AED 350 ($95.63). If it can successfully mitigate the case, it charges 2% of the entire debt amount.
London-based charity Detained in Dubai, founded by Radha Sterling, is also helping people to sort out legal issues in Dubai.
Prevention is better than cure
Debt can be the result of unforeseen circumstances, such as redundancy or death or incapacity of the main breadwinner in your family.
Often, though, debt is simply the result of living beyond your means. The following spending habits are likely to lead to a spiral of debt:
Spending more than you earn by resorting to borrowing from others, using credit cards and frittering away savings;
Taking out loans to buy goods and services that aren't necessary;
Using debt to repay debt.
So what can you do to break out of the cycle of debt and get your finances back on track? Here are a few tips from ISDM:
Start budgeting – it is never too late;
Try to negotiate on your rent or move to a cheaper property;
Cut back on utility expenses: make less overseas calls and reduce your usage of electricity and water;
Eliminate unnecessary expenses, like entertainment and eating out;
Cut down on transportation costs;
Cut back on club membership and other subscriptions;
Save on big purchases: instead of replacing, go for repairing;
Don’t impulse buy.
If you follow the above general rules, you're already half way there to avoid falling into the debt trap, but if you are already in it acknowledge your situation objectively and negotiate smartly. Be aggressive, but at the same time realistic about paying off your debt.
The rules of a country might be binding, but you can make your own rules to keep your head above water.
Pic credit: Pixomar/ FreeDigitalPhotos.net
Do you know anybody who was burdened with enormous debt? Did they faced a hard bargain from banks or were they detained in Dubai for non-payment of dues? share your stories with cashy....