New insolvency rules to allow €899 monthly spend for debtors
Single adult will be permitted €247 for food and and €35.73 for clothes per month
Minimum income guidelines for people entering the State’s new insolvency process have not been set in stone or at “subsistence level living or anywhere close to that”, the head of the agency overseeing the process has said.
Lorcan O’Connor of the Insolvency Service of Ireland (ISI) said the new guidelines would be flexible and would not see people’s finances being “micro-managed” by banks or new Personal Insolvency Practitioners (PIPS).
However, he admitted many people would be forced to give up private health insurance, cars and holidays.
The guidelines on a “reasonable standard of living” for insolvent debtors and “reasonable living expenses” are central to the insolvency regime as they set out how much money people will be allowed to spend within any deal agreed with their creditors.
It includes expenditure limits on items such as food and basic medicine.
Under the guidelines a single adult with no car will be permitted expenditure of €898.96 in set cost over and above any mortgage or rent payments. The set costs will rise to €1,030 if that adult has a a car. They will be given €126 a month – or €29 a week to cover social inclusion. An allowance of €204.88 is to made for each child of primary school-going age.
Minister for Justice Alan Shatter unveiled details of the new insolvency process this afternoon in Government Buildingsand the insolvency service has also launched an information campaign. This includes guides to debt settlements along with a website and an information helpline for queries.
Mr O’Connor told The Irish Times childcare costs would come under the microscope but he denied people would be forced to give up work if their earnings were less than the cost of childcare.
He said PIPs would have to “ensure that the child care costs are reasonable” but expressed the view that “it would be completely counter intuitive to ask anyone to give up a job.
“It makes sense for people to remain in their jobs and while there may be some people who have childcare costs in excess of their income there may be reasons for this.”
He said some guidelines, including those referring to childcare costs, had been redrafted in recent weeks to make it clearer that people would not be forced to give up work.
He said the redraft was needed because he felt the flexibility “which is so enshrined” in the ISI’s intentions had not been sufficiently outlined in early drafts. While the wording of the guidelines had changed in recent weeks, he said the numbers had not, Mr O’Connor said.
The ISI has relied heavily on work carried out by the Vincentian Partnership for Social Justice on income guidelines and have been “sense-checked” with both the CSO and the Central Bank as well as the personal insolvency service in the UK counterparts.
Mr O’Connor said the Vincentian Partnership study had been done “in a very scientific way” and its figures were “based on needs rather than wants. I certainly wouldn’t describe the Vincentians as being pro-bank”.
The UK does not makes its spending guidelines available to the public but they are known with the industry and, according to Mr O’Connor, the levels of expenditure in the Republic will be higher than in the UK.
“That is not to say we are being more generous because the cost of living here is higher but it does give us comfort that our figures are not off the wall.
“I could have said that an adult had a spending limit of €1,000 a month but the guidelines – which are for information purposes only – are trying to bring transparency to the process. This is a stepping stone to get unsustainable debt written-off and it is hugely positive. But again these are just guidelines and it will be for the PIPs to use them as a starting point. Debtors have been signing up to arrangement with their banks which have set expenditure too low.”
He said as a starting point “health insurance is not included” and claimed that this “was not an easy decision to make”. However he said there would be flexibility . “If you have a pre-existing condition that requires ongoing health care then that will be looked at or if you are of an age where getting insurance after allowing it to lapse would be difficult you will be allowed to retain it.”
Mr O’Connor said the figures included allowances for “social inclusion” to help people remain part of society. That has been set at €125.97 a month for an adult or €28.97 a week. There is a provision for a basic television subscriptions but Mr O’Connor denied people would be forced to surrender premium television subscriptions such as Sky Sports as part of any arrangement.
He said there would be “no micro-management of finances”.
People could see the amounts they are allowed spend each month increase as the process goes on and, according to Mr O’Connor, PIPs will be given the flexibility to allow people an additional €100 in the second year of the process and a further €100 in the third year.
He said “there are very few people in Ireland who could claim to be experts in personal insolvency” and he highlighted PIPs would have to a legal or financial background and would also require “the intangible which are the negotiating skills needed to bring opposing sides together”.
Those with a financial or legal background who have successfully completed an approved insolvency course will be able to apply to become a PIP.
“We need this to happen by June and we have been talking to various professional bodies for several months.”
The Law Society will start a course which has been signed off on by the ISI tomorrow while another course for accountants will begin in May.