Thursday 18 December 2014

Debt deals leave just €5 per day for food

Charlie Weston Personal Finance Editor

Published 30/03/2013 | 05:00

HOMEOWNERS with mortgages they cannot pay face giving up their homes to get a debt deal.

And people getting a write-off on their borrowings will also be told that they can no longer give money to charity.

Families of four face getting by on food spending of just €20 a day, or €5 per person, while those living in a large town or city with good transport links will have to ditch their cars.

The strict restrictions are all contained within "reasonable living guidelines" to be issued by the Personal Insolvency Service as it prepares to offer new deals on debt.

A full copy of the guidelines have been obtained by the Irish Independent. They show for the first time the financial constraints that families will be living under if they seek a deal. The guidelines show:

• Families with two children will be told to live on a maximum of €22,500 a year. This takes account of child benefit payments, but does not allow for childcare costs, or mortgage payments.

• If the family needs to spend money on childcare it will have to prove what it costs by producing receipts or bank details.

• But the final budget allowed will vary from case to case, with flexibility allowed for different debtor circumstances.

The guidelines are not going to change, despite a week-long controversy over childcare costs, this newspaper has learned. They are now due to be issued in mid-April, before the new personal insolvency regime begins this summer.

Justice Minister Alan Shatter has already acknowledged that the new system won't completely negate "bankruptcy tourism", where people head to the UK to avail of more lenient laws there.

But there are now more options coming in for debt-ravaged people to stay in Ireland, get some debt written off and strike a deal with the bank.

Under the new guidelines, those in big homes who can't afford their mortgages will not necessarily get to keep the house.

Personal insolvency practitioners (PIPs) who negotiate the deal between the bank and debtor will have to look at the "cost of alternative accommodation".

And if staying in the family home will cost too much compared to alternatives like renting, then the debtor may be asked to leave the property.

It states: "Where the PIP forms the opinion that the costs of continuing to reside in the debtor's principal private residence are disproportionately large, he or she will not be required to formulate a proposal on the basis of the debtor continuing to occupy the property."

Meanwhile, Taoiseach Enda Kenny insisted this week that it would not be mandatory for those seeking a personal insolvency arrangement or debt settlement arrangement to give up a job where childcare costs were higher than wages.

His comments came after Transport Minister Leo Varadkar suggested parents may have to give up work to save on childcare costs.

But the guidelines suggest that "where a person is working and paying for childcare as a consequence of his or her employment, the cost of childcare should not exceed the income from employment".

Charity

It is understood from those close to the Insolvency Service that this has been widely misinterpreted as being a strict rule but it will not apply in every case and was put into the booklet to establish a principle.

The controversial guideline is also to allow banks to challenge those deliberately inflating their childcare costs, while also looking for a big chunk of their debts to be written off.

No amount of money is set out for what is acceptable to spend on childcare, but guidelines say if this expense is needed, it has to be "reasonable".

They state that "where childcare is paid for, the reasonableness of this expense should be considered" by a personal insolvency practitioner drawing up a debt deal to be presented to a bank.

But the cost of childcare will have to reflect what it costs in the locality.

The guidelines do not allow for "private medical insurance, holiday costs, having more than one car and payment of discretionary items (such as voluntary donations)".

This could mean no money put into the basket for collections at Masses, and not donating spare coins into a Trocaire Lenten boxes.

Those who really want to contribute to their church or charity could take it out of the social inclusion part of the budget guidelines, one person familiar with the guidelines said.

This is allowed at €28.97 a week for one adult, and is listed as including sports activities and social events.

The guidelines in general set out what is a "reasonable standard of living" and explain that while this does not mean debtors should live in luxury, nor should people be forced to live at subsistence level.

The document states a number of times that the guidelines are not prescriptive, that there will be flexility, and that what is regarded as a "reasonable expense" will vary.

The 55-page booklet has been based on previous research by the Vincentian Partnership for Social Justice, and other surveys of what constitutes a basic standard of living.

And the guide is clear that there has to be an incentive to stop people opting for social welfare instead of continuing to work when they are in a debt arrangement, which could last up to seven years.

"A reduction to the income level that an individual would have if he or she were to be unemployed and in receipt of social welfare could take away the incentive to go to work," it states

Irish Independent

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