Allowance 'shield' for families
An average family with two children will be allowed up to €2,094 a month to provide a reasonable standard of living and strike a debt deal with their bank.
Holidays are not an option for struggling borrowers under the new personal insolvency regime, but some leeway will be given to families to keep satellite TV and a car.
Portions of debts may also be written off where it is proven that repossession is of no value to a bank.
Director of the Insolvency Service of Ireland (ISI) Lorcan O’Connor reassured families whose income does not meet childcare costs, insisting that a working parent will not be forced to sacrifice their job.
“There is not a requirement for people to give up their jobs. That would be counter-intuitive to what these measures are aiming to achieve,” Mr O’Connor said.
“Where their income is lower than childcare costs, the practitioner will look at that, so long as there is an income rationale.”
He said there would be flexibility within the guidelines allowing people to stay in work – for example where an individual expects to get a promotion further down the line or believes their childcare costs might come down.
Parents will also have to provide a personal insolvency practitioner (PIP) and bank with proof of their childcare costs with receipts and bank statements.
The insolvency measures include three separate solutions, which will be open to applicants at the end of June, including a Debt Relief Notice, Debt Settlement Arrangement and Personal Insolvency Arrangement.
They are aimed at restoring an insolvent individual back to solvency within three to six years – without them having to resort to bankruptcy.
Justice Minister Alan Shatter described the measures as a “defensive shield” to protect debtors from “predatory” creditors.
The guidelines stipulate that the average family – with two adults and two children in secondary school, and that runs a car – needs €2,094 a month to fund a reasonable standard of living.
They state such a family could feed itself with €279 a month, heat their home with €93, pay for electricity with 91 euro and run their car with €253.
“These guidelines are a defensive shield to ensure that creditors cannot force individuals into a position that they do not funds that allow a reasonable standard of living,” Mr Shatter said.
“There is an income below which you cannot go, which provides you with a degree of protection. That is why we refer to them as a defensive shield.”
The ISI describes a reasonable standard of living as one which meets a person’s physical, psychological and social needs.
“Under the ISI model, a reasonable standard of living does not mean that a person should live at a luxury level but neither does it mean that a person should only live at subsistence level,” it states.
It also suggests a debtor should be able to afford to participate in community life, eat nutritious food, keep the home tidy and wear suitable clothes.
PIPs will act as intermediaries between struggling borrower and their financial institution in a bid to reach a sustainable solution to their debt under the arrangements.
They will ensure that the deal struck leaves the borrower with enough money a month to live in such a reasonable condition.
Under the guidelines, a family that has entered a debt arrangement may be forced to give up their car depending on how much they need it.
The PIP would assess the individual’s need. For example, those living in a city are less likely to need a car but would be allowed one if public transport is inadequate and a car is necessary to get to work, school and shopping.
The reasonable standard of living expenses covered in the insolvency arrangements – which vary depending on individual circumstances – do not permit money for a holiday.
Phone and basic internet are permitted with five euro allocated for each a month, while any savings made under the scheme must be earmarked for emergencies.
The ISI also deems cable or satellite TV to be unessential and provides an allowance for a Saorview box. But individuals would be allowed to prioritise Sky TV in their budget at the expense of something else.
Elsewhere, Mr Shatter said there may be some cases where struggling homeowners could have some of their debts written off.
He said a homeowner in negative equity who could only afford to make repayments based on the property’s worth – and not what they originally bought the house for – could have the remaining debt struck off.
He said banks were likely to oblige because it would make more economic sense recovering the property’s worth from the owner, rather than repossessing it and recouping the value.
The guidelines also protect people in their homes – whether they own or rent - allowing them to stay in property until it is deemed to big for their needs.
This may apply to parents whose children have left home for university and have no intention of returning to stay permanently.
