Guidelines need to be flexible in a case-to-case basis, writes Paul C Carroll
The proposed insolvency guidelines, leaked over the past two weekends, have generated plenty of negative reaction and newspaper headlines.
Unfortunately, it seems that the purpose of the insolvency act — to help people get relief from excess debt — is once again being hijacked by creditors’ interest, and specifically banks, in order to avoid the inevitable debt write-offs.
There are some very important points within the guidelines that are being overlooked and that need to be stressed to encourage people who are insolvent not to be afraid of using the legislation to rid themselves of their excess debt and help them get back to a more normal life.
Almost every person who walks through my door comes with excess debt and some sort of health issue, mostly caused by this excess debt burden.
The guidelines are not designed to put people on the breadline and they need to be flexible when being applied on a case-by-case basis.
The guidelines will form the basis of a road map for a bank settlement. If the bank is not forthcoming, then it will be left up to the insolvency service and/or courts to decide.
My experience of a similar process in another jurisdiction is that the banks will be forced to enter into an agreement when it is shown to be reasonable, within the guidelines, and providing a solution which the process is looking to do — that is, relief from the burden of excess debt for the debtor.
People need to understand that it is with their Personal Insolvency Practitioner that they review their assets, liabilities, income and expenditure. The results of that review and the proposal arising from the review will be presented to the banks by the PIP and not the debtor.
Anyone who is in financial difficulties has already taken steps to cut their spending and adjust their lifestyle (including myself) according to their financial difficulties. So I would suggest that the proper application of the proposed guidelines may enhance people’s budgets much to the annoyance of the banks.
These are 15 living expense categories which will form the basis for any debt deal:
*Food: “The expenditure has to be able to provide an adequate, healthy, nutritious, balanced diet and help with a healthy lifestyle.”
This is very reasonable and, in most cases I have being dealing with, should provide more in a budget rather than less in this category. However, the suggested figure of €57 for a single person per week on food may result in banks suggesting “euro-saver meals”. This will hardily promote “an adequate, healthy, nutritious balanced diet and help with a healthy lifestyle”.
*Clothing: “Clothing and footwear for all seasons, including accessories.”
The suggested figure here for a single person working of €36 per month is simply unrealistic if you take into account, among other things, dressing for work. So if people are going to be able to keep themselves in a reasonable state, this budget is going to have to be flexible.
*Health and Medications: Allowances here have to be totally flexible depending on who is in the household and how their health is. The guideline suggests a budget for GP visits, medication, options, dentists etc. A proposed figure of €31 per month for a single person is laughable if that person does not have a full medical card, free dentist, and eye care.
*Household goods: This covers all items needed to run a normal household — so if it is broken, it needs to be fixed or replaced. Hard to argue with that. However, the suggested €31 per month maybe adequate if you are renting but if you are a homeowner a good bit more flexibility will be needed.
*Household services: All the normal expenses required to run a home including bin charges, repairs etc need to be included here. For a single person, the suggested figure is €29 per month which will hardily cover bin charges. So if we wish people to be able to run a normal household flexibility will be required.
*Communications: No mention of not having a mobile or excluding your children from having one, as I have often seen in debt deals. The single person’s suggested budget here is €50 per month.
*Education: All education expenses can be included including adult education. It is very important to make sure people participate in society in a proper way.
*Transport: Costs of running a car for work or if necessary getting to schools and shops where public transport is not available or not a suitable option. Yes, the second car has to be considered here. If the second car is necessary, can be afforded from current income, and can be justified than it is OK. However, where people can do without the second car, most have gotten rid of it (including myself) already.
The allowance for a single person proposed here is €137 per month if you are using public transport and €240 if you have a car.
*Household energy: The allowances of €105 per month for a single person will just about manage a warm and comfortable home.
*Insurance: Both household and car insurance is included here, but private health insurance is omitted. However, its omission does not mean it cannot be included if it is necessary. Personal and family circumstances will need to be considered here.
*Savings and contingencies: Life assurance is included here, as well as savings for contingencies. However, with the suggested budget of €5 per week for a single person, the contingencies better be just that.
*Social inclusion: This is probably one of the most important guidelines from a personal point of view. Despite the hype, people will be able to pay reasonable club fees and send the kids to music lessons or football training. Once again, the guidelines and the suggested budgets are in total conflict and need some serious attention. A budget of €29 per week for a single person will ensure social exclusion.
*Housing: The cost of renting or mortgage is also included. It is suggested that this should be no more than 35% of disposable income. So if a home loan is in excess of this figure and the home is in significant negative equity then the home loan will have to be written down to a figure that will be sustained by a payment of a maximum of 35% of net disposable income.
*Childcare: The cost of full or part-time care is to be included in a budget. The question of whether the cost of the childcare is in excess of one of the parent’s income could give rise to the family having to justify why that parent would continue to work.
Overall, the legislation could be very progressive in dealing with personal secured and unsecured debt. Yet its usefulness is being undermined by playing into the hands of those very institutions who caused the necessity for the legalisation in the first place — the banks.
*Paul C Carroll is a debt restructuring executive at Neo Financial Solutions
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