The Government today launched a personal insolvency service
which introduces new arrangements for struggling borrowers to reach agreement
with their creditors.
Insolvency Service of Ireland
(ISI), the new State agency, will be in a position to begin accepting
applications at the end of June this year. Debtors will face spending limits.
There will be three different debt solutions that
will depend on the amount of debt involved, individual circumstances, whether
there is a mortgage, and whether the debt is secured or unsecured: The Debt
Relief Notice (DRN) is for debts up to €20,000; the Debt Settlement Arrangement
(DSA) is for unsecured debts of no limit; and the Personal Insolvency
Arrangement (PIA) is for unsecured and secured debt.
Speaking about the Guide to a Reasonable Standard
of Living and Reasonable Living Expenses, Lorcan O'Connor, ISI director, said
that that the guidelines are a modified version of the model developed in
Ireland by the Vincentian Partnership for Social Justice, and were not designed
for the micro-management of people’s expenditure or lifestyle by either the
Insolvency Service or by creditors.
"A reasonable standard of living does not mean
that a person should live at a luxury level" O’Connor said. "But nor does it
mean that people should be punished and live only at a subsistence level. These
guidelines are meant to be flexible. They are a baseline for negotiations and
discussions. Our objective is to help people in genuine distress, and to allow
them their dignity as they work their way out from under their financial
burdens."
Under the ISI 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 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. Private medical insurance, holiday
costs, having more than one car and payment of discretionary items (such as
voluntary donations) are excluded.
Guidelines on a reasonable standard of living and reasonable
living expenses [pdf]
Liz Hughes, head of ACCA Ireland, an accountancy
institute, said: “It has been reported that some vulnerable borrowers were
having excessively strict budgets and conditions imposed by lenders
renegotiating repayment of loans. The standard Cost of Living Tables ensure that
all borrowers will have to be treated equally from now on. We have been told of
cases where the borrower was told to ‘get rid of the dog’ and cancel all school
trips. Borrowers can now point to the tables and insist on getting a basic
standard of living before repayments to the lender are made.”
A small minority of borrowers were expecting a debt forgiveness bonanza from the
personal insolvency legislation; the cost of living tables reveal that there
will be no such thing. The tables reveal that there will be five or six years
of living on very meagre levels of disposable income, and then recommencing
one’s life at the end of this period still encumbered with a mortgage, however
the mortgage will be limited to the value of one’s home. All that will be
forgiven is the negative equity in a mortgage and in return the borrower will
be, not quite in penury but not far off it either, for six years.
Before entering into a formal Personal Insolvency Arrangement (PIA), a borrower
must go through the Mortgage Arrears Resolution Process with their bank. ACCA
encourages borrowers to engage positively with their bank in this process. This
process is less legalistic, there is greater scope for flexibility in the
arrangement, it will be a private arrangement between the bank and the borrower
and the borrower will be entitled to independent advice on the merits of the
scheme offered, from a qualified accountant with the advice paid for by the
lender."
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