IN RECENT DAYS, the media and politicians have been highlighting the criteria of acceptable living expenses under the new Personal Insolvency Act. Reports suggest a person may be required to quit their job in order to reduce expenditure on childcare, they may have to surrender their car if there is sufficient public transport locally, and they will have to live on a set amount of money every week to cover food, clothing, utility bills and other normal family expenses.
This has caused some anxiety and stress for those seeking to avail of the new debt relief mechanisms contained in the Act, but it must be understood that this is not as black-and-white as it has been described, and it also very similar to how lenders have been evaluating the circumstances of distressed mortgage holders under the Mortgage Arrears Resolution Process (MARP). The difference is that under MARP, the banks have been negotiating directly with the borrower, and not the intermediary – the Personal Insolvency Practitioner (PIP).
The purpose of the ‘trigger figures’ in the financial statement are that they are designed to serve as a guideline to Personal Insolvency Practitioners in terms of how much a family should be spending on normal living expenses, such as food, electricity, heating oil and medical expenses. They are designed to ensure that applications made under the new Insolvency Act are as efficient as possible, and that questionable expenses are explained at the earliest stage.
These ‘trigger figures’ already exist in the UK, and are used extensively by Insolvency Practitioners and Citizens Advice Bureaux when compiling the Common Financial Statement under Insolvency laws there, so it is not surprising that our own Insolvency Service is following the same course.
The idea is, that a PIP along with the debtor, will work through the various expenses that the debtor has, to be submitted to their creditors. An expenditure of €600 per month on food and groceries would not be unreasonable for a family of two adults and two dependents. For only two adults in the household, €600 would be considered unacceptable. This would be alerted to the PIP that is unlikely to be accepted, without some explanation, for example where a coeliac person or someone with Crohn’s disease has specific dietary requirements, and foods can be more expensive.
As another example, if you are unemployed living in an urban area, and spending €200 per month on fuel would be questioned, however if you live in a rural area, this would probably be acceptable.
Similarly, where a family has a vehicle, it will not normally be the case that the vehicle should be sold, unless the vehicle is not fit for purpose, or a cheaper alternative may be available. It is unlikely that a debtor would be able to keep a 2011 BMW, however the family could trade down to a more reasonable or economical vehicle. Remember that in bankruptcy, you are allowed to keep a vehicle up to the value of €2,000.
The surrender of private health insurance is a contentious issue, but it may also not necessarily have to be surrendered, as there are other factors which PIPs will have to take into account, for example if there is a history of illness or the age of the debtor, as an illness could cause an acceptable arrangement to fail.
You may not be allowed to have a full Sky package, but that does not mean you have to cancel it. You may be allowed to keep the basic package. You are entitled to have a life, not just an existence.
This process is also not a new concept. Prior to the introduction of the Personal Insolvency Act, we already have extensive experience of assisting debtors restructure their debts through informal arrangements, and this process is well established when negotiating with creditors. It is certainly not reinventing the wheel, but it will come under more scrutiny over the months and years ahead, once the new Insolvency regime takes effect.
It must be remembered though, that the new reliefs available, such as the Debt Settlement Arrangement and the Personal Insolvency Arrangement are negotiations in themselves. PIPs must be fair to both the creditor and the debtor alike, and by acting as the intermediary will be required to get the best outcome for both parties. It will mean concessions on both sides, and it will not work unless both parties to the negotiation are realistic.
Ryan Stewart is a director of Frost Debt Solutions Ltd, who will be acting as Personal Insolvency Practitioners under the new Insolvency legislation. Frost Debt Solutions are currently providing advice to debtors considering their options ahead of the launch of the new Insolvency Service of Ireland.
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