Child benefit is ruled off limits in debt deals
PERSONAL Insolvency Practitioners (PIPS) have been told that they can not include child benefit payments as debtors' monthly income because it wrongly inflates their ability to pay their banks.
Child benefit is payable to the parents or guardians of children under 16 years of age, or under 18 years of age if the child is in full-time education.
Some PIPS, who are authorised to manage debt settlement and insolvency arrangements on behalf of struggling debtors, were including child benefit payments as monthly income for the purpose of proposing debt deals to banks and other creditors.
This month's Budget increased the rate of Child Benefit by €5 to €135 per month for each child from January 2015.
The Insolvency Service of Ireland (ISI) has written to PIPs to tell them that child benefit can not be used as part of any debt repayment plan. The ISI has told PIPs that child benefit is already deducted from the living expenses of a child under its guidelines on reasonable standards of living and expenses.
"This is done on the basis that child benefit payments are intended to be spent on a child," said the ISI in a circular.
"Failure to disregard child benefit payments from income of the debtor when preparing a proposal will effectively result in overstating the amount the debtor has available from which to make payments to creditors; the debtor will appear to have income despite the fact that this money has already been factored into the calculations of the expenses per child".
The ISI, which recently launched a new website, backontrack.ie - aimed at people who are struggling with debt - said that some creditors are dissatisfied at the level of "prudent verification" being carried out by PIPs in relation to financial information provided by debtors in the early stages of the process.
PIPs have been told to question debtors more as to the veracity and accuracy of their financial documents to avoid debt proposals being rejected by banks.
The ISI has also advised that where a debtor and their family leaves their home, also known as the principal private residence (PPR), the family home should be recategorised as an investment property with a comment entered to reflect the "true position".