Bank inaction does not bode well

Minimum allowances laid out in the insolvency guidelines do not guarantee a debt deal and the banks are still very much in control, writes David Hall

THE much-leaked, much-debated insolvency guidelines were finally released yesterday.

The force of reaction to early hints that women would be forced out of the workplace if involved in an insolvency scheme, and if their childcare costs were greater than their pay cheque, saw that proposal abolished.

These expenditure guidelines are just that — minimum guidelines. However, they will form an integral part of any insolvency arrangement agreed to by banks and creditors. They may also form a useful place in the negotiation and restructuring of debts outside the formal insolvency system.

To date, all negotiation has been one-sided. You sat with the bank and poured your heart out and disclosed all your financial information but were never told what calculations they used to determine your fate.

Nonetheless, it won’t be easy and will, in my view, cause significant pain and pressure for people. I’m very uncomfortable with such important public policy being produced by civil servants.

Are we expecting banks to be reasonable and increase the minimum figures after such inaction over the past five years?

- A single person living alone with no vehicle will be allowed €900.08 a month. But they could be alone for longer now as they will only be allowed €125.97 for social inclusion and participation. If you have a vehicle you’re allowed an additional €129.75.

- A single-parent family with no car, with a 3-year-old and a 10-year-old, will be allowed a total monthly expenditure of €1,336.62. This is allocated as €1,066.75 for the parent and €64.99 for the preschool child and €204.88 for the primary school child.

- A two-adult household with three children (one pre-school, one primary, and one secondary) and no vehicle are allowed €1908.73 per month comprising of €46.09 for the pre-school child; €177.13 for the primary school child; €379.74 for the secondary school child. If you have a vehicle you’re allowed a further €53.90 and those without are allowed €225.96 for public transport.

These figures have removed child benefit from them so they are net allowable amounts.

A two-adult household with no car is allowed a total monthly spend of €1438.01 giving a public transport allowance of €272.59 . Nowhere does the insolvency service allow for two cars in a household.

The above are an example of the minimum monthly allowances for those seeking to avail of an insolvency arrangement. They do not, as has been misinterpreted, guarantee a “debt deal”. The bank and creditors are fully in charge. They, following negotiation on your behalf by a professional insolvency practitioner (paid for by yourself) will agree to a specific deal which must involve debt writedown.

There is a significant injustice which remains in this system. Many people are heavily indebted and have no money to pay for a professional insolvency practitioner. While practitioners have to survive, there is a risk that people with best access to some money could secure assistance and those with none will be left on the scrap heap.

There is urgency around the need to add public insolvency services to the structure of Mabs, so those most in trouble and most vulnerable are protected.

If you are charged with a crime and don’t have means to defend yourself, you’re entitled to free legal aid. If you’re facing repossession proceedings or wish to avail of the insolvency process and don’t have the funds to pay for it, you’re entitled to nothing — no help, no assistance, no representation.

Also, not being prescriptive around fees and how and when they can be charged, in my view, will ensure a three-tiered system will emerge. Those who can pay and pay upfront will travel in the insolvency first-class seat; those who might have a chance of a deal and where some money can be paid along the journey will get a business-class seat; and those with no cashflow will be in economy — and maybe even in the cargohold.

ONE of the most horrible aspects of this new insolvency system is where your name, date of birth, address, and the date of your insolvency arrangement are published online.

In Mountjoy prisoners are given a spending allowance and whereas debtors have some freedom still they will have very little to spend and to contribute to local business.

These guidelines do not make provision for those currently unemployed and who gain employment but might require up-front money — for getting a car, for example — ahead of a pay cheque. This is contrary to the Government’s policy to get people back to work.

All in all, this is only a baby step, but the proof will be in the creditors’ response, and to date it’s been pathetic.

Full details of the guidelines are on www.mortgageholders.ie

- David Hall was one of the co-founders of New Beginning in 2010. In Jul 2012, he and other concerned citizens set up the Irish Mortgage Holders Organisation (IMHO) to help consumers tackle the increasing burden of personal debt. In addition to IMHO, David owns and runs Lifeline Ambulance Service. David founded the Make-A-Wish Foundation in 1992 and was its voluntary CEO for 10 years. He was president of the international organisation of Make-A-Wish from 1999 to 2001. He chaired the board of the Marie Keating Foundation from 2001 to 2011 and is a board member of Beaumont Hospital Foundation.