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Struggling borrowers may have to move house, sell car and change creche to enter new insolvency process

The new guidelines do NOT, however, require one parent to give up work if their childcare costs more than they earn.

Image: Empty wallet via Shutterstock

BORROWERS STRUGGLING to keep up with their repayments made be forced to move house, sell a car and change their child’s childcare arrangements in order to qualify for the State’s new insolvency and debt resolution procedures.

The guidelines, published by the new Insolvency Service of Ireland this afternoon, outline the criteria used to define a ‘reasonable’ standard of living – the lifestyle that a struggling borrower will have to adopt in order to qualify for the procedures.

If an alternative accommodation of a reasonable standard for a family can be found in the vicinity, and is cheaper than the current accommodation arrangements, households will also be expected to relocate.

Insolvency accessors will consider the likely cost of remaining in the current accommodation, the ability of others to contribute to the cost of the debtor’s accommodation, and the cost of alternative rented accommodation that would fulfil their reasonable housing needs.

The rules indicate that someone living in an urban area with public transport links should not need the use of a car – while households with two cars would have to pare back their usage to one vehicle in order to qualify.

Defining a car as necessary only where it is needed to get to and from the workplace, the rules say:

Where public transport is not adequate to meet the needs of the household, the [insolvency assessor] should choose the vehicle option based on the needs of the household (needs, not wants).

Households will also have to give up private health insurance and sacrifice any holiday savings in order to qualify for the new regime.

In all, a single person may be set spending limits of roughly €11,100 a year under the standard of living guidelines. Guideline spending limits for couples, and people with children, can be found in this booklet.

The rules state, however, that insolvency advisors will not micromanage a person’s finances once they reduce their cost of living to within the ‘headline’ figures for each category.

‘Not luxury, but not subsistence level either’

The rules say that 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” – and should be able to “participate in the life of the community, as other citizens do”.

It says it should be reasonable for a person to have clothes for different occasions and to be able to go to the cinema or watch TV, and buy a book or read a newspaper.

When determining reasonable living expenses, “provision needs to be made for reasonable housing costs in terms of rent or mortgage payments as well as for reasonable payments in respect of childcare where this expense arises,” it says.

However, the final version of the guidelines drop the highly controversial proposal forcing parents to give up work if they earn less than their childcare costs – a clause which prompted fury when first reported in newspapers last month.

Instead, households may be told to enrol their children in the Early Childhood Care and Education scheme, which provides a free year of childcare.

Image: How much you’re allowed to spend under new insolvency rules

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Gavan Reilly

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