Occasional holiday or Sky Sports to be allowed as long as people comply with deals

People availing of Ireland’s personal insolvency procedure will not have to worry about enjoying the odd treat or holiday so long as they comply with their banking agreement.

However, banks and other major creditors will operate a “trigger-figure” system which will engage if those in financial distress go over their spending.

It will mean that those who persistently exceed agreed spending will be subject to individual scrutiny by the banks and pressurised to reduce it.

Giving a broad welcome to the new system, the Money Advice and Budgeting Service (Mabs) said that it was based on need and not want, and, therefore, those availing of the service had to be prudent and careful about spending.

“It will allow for contingencies, like doctors’ bills and other unforeseen items, so those who think that everyone will be subject to forensic assessment by the banks is simply wrong,” said Michael Culloty, the national development officer of Mabs.

“These are just guidelines and they must be applied to individual circumstances.

“So, for example, private health insurance may be deemed acceptable for some but not all.”

He also scotched fears that a young mother or father might have to stop working if their salary is less than the cost of childcare. “That makes sense because, in the longer term, any restriction on income will limit further a couple’s ability to repay their debt.”

Mr Culloty said that the budgetary restrictions to be imposed on those availing of the service would operate over a period of months to allow them to adjust their spending over the year.

“So long as you stay below the target figure, it will be up to the individual to make savings elsewhere if he or she wants, for example, to pay for Sky Sports or take a holiday. The banks will not be sending detectives out to your door to see if you have had a holiday in Ballybunion.”

Meanwhile, the Free Legal Advice Centres (Flac) organisation said the personal insolvency regime had been delayed for too long and the guidelines were to be welcomed.

It said it was particularly important that the people would be able to set a minimum income to live off.

This, it said, should prevent people from being driven to unacceptably low living standards while dealing with debt problems.

“Up to now, most consumers have had no idea what criteria banks are using to assess minimum acceptable income and from what we hear in Flac, many have been pressed beyond acceptable limits,” it said.

Flac also said it was important that people recognised that the restrictions the banks would impose on people would be part of a trade-off that would see parts of their debts written off.

However, it also said the Government needed to ensure that people availing of this approach should have access to proper independent advice.

It said this applied to those who were insolvent as well as those who might be in debt but able to avoid this approach.

“The Government’s scheme of assistance, whereby a person can avail of accountancy advice up to a limit of €250, is only available when the bank and the debtor have concluded negotiations and the bank has put its offer on the table,” it said.

“This, in Flac’s view, is too late. Assistance is needed in the course of negotiation.”